The international diversification of banks and the value of their cross-border M&A advice

__Abstract__ We examine the impact of the international diversification by banks on the value of their advice provided in cross-border merger and acquisition transactions by studying bidder returns and deal performance following 1,708 cross-border M&A deals. We find that bidders engaging a more internationally diversified financial advisor face lower stock price and synergy returns, worse deal operating performance, and slower deal completion. We show that these negative effects of diversification can be mitigated by involvement in financing or country-specific available capacity of the advisor. [version: December 2013

Cross-Border Acquisitions: A Country-Level Analysis

Country-level factors play an important role in the success or failure of cross-border acquisitions (i.e., acquisitions where the acquiring and target firms are in two different countries). If we are to understand and improve the success rates of these acquisitions, we must explore this issue in more depth. As globalization continues to emerge around the world, cross-border acquisitions have become a common way to enter a new foreign market. There is limited research available so far for these acquisitions on the country-level. Currently, cross-border acquisitions have failure rates of up to 70%. We analyze acquisition premium and use three dimensions of distance - administrative, economic, and financial - to understand how these country-level factors affect the performance of cross-border acquisitions. We collected data on acquisitions announced between 2011 and 2014 from the SDC database. We have 108 deals in our final sample used to conduct the statistical analyses. We found that while premium is negatively related to acquisition performance, this relationship is contingent on administrative and financial distances

Investment Bank Expertise in Cross-Border Mergers and Acquisitions

We study the influence of country expertise of investment banks in facilitating cross‐border merger deals by analyzing a large international sample of merger and acquisition (M&A) deals. We provide evidence that the geographical proximity, cultural affinity, and local experience of investment banks advising bidding firms on cross‐border M&A deals significantly increase the probability of completion of the deal, significantly decrease the time required to complete the deal, and significantly increase the operating performance of the acquiring firm after the deal. Our results are robust to firm, deal, country‐specific factors, and endogeneity concerns

What Determines Global Flows of Entrepreneurial Finance?

Economists examine foreign direct investment, which mostly constitutes flows to established firms (sometimes characterized as “multinational corporations”) that might or might not engage in truly innovative activity in the FDI target country. Conversely, finance scholars have studied the pipeline of entrepreneurial finance from limited partnerships (LPs) to venture capitalists (VCs) or private equity general partners (GPs) to portfolio firms. Few studies examine relationships between general and limited partners, and those that do often examine only the United States, or a limited number of countries in a given region. This paper uses a novel dataset (LP Source) to examine secular trends in cross-national flows from the LP to the GP (in the form of various investment funds) to the portfolio firm. We find evidence for “home bias” and demonstrate that cross-border flows are affected by GDP per capita, export orientation, and country-level measures of the entrepreneurial environment

"Boutique" financial advisors vs. full-service investment banks: An analysis of advisor choice and deal outcomes in mergers and acquisitions

OBJECTIVES OF THE STUDY: In this thesis, I study the motives and impact of hiring boutique advisors in mergers and acquisitions (M&A). Specifically, this paper investigates a merging firm's choice between boutique and full-service advisors and the impact of advisor choice on deal outcomes regarding deal premium, deal duration and deal completion. DATA AND METHODOLOGY: My sample consists of 906 M&A transactions. The sample is collected from the Securities Data Corporations (SDC) database in Thomson One Banker. The sample contains completed and withdrawn transactions from the international merger database from 1987 to 2013. Both the acquirer and target firm are required to be publicly traded firms from the EU-19 countries, Norway, and Switzerland. Advisor choice is analyzed with multivariate logistic regressions. Deal premiums are analyzed with OLS regressions and a two-step procedure. Deal duration is analyzed with OLS regressions and deal completion is analyzed with multivariate probit regressions. FINDINGS OF THE STUDY: The findings suggest that deal size is an important factor in determining how merging firms select financial advisors. Boutique advisors are less likely to be chosen by either acquirers or targets as deal size increases. Additionally, some findings suggest that boutique advisors are hired when merging firms face complex transactions but these findings are weak. With regard to whether boutiques can improve deal outcomes, the findings are mixed

Management practices and M&A success

We study whether management practices determine merger and acquisition (M&A) success. We model management as an unobserved (latent) variable in a standard microeconomic model of the firm and derive firm-year management estimates. We validate these estimates against benchmark survey data on management practices and by using Monte Carlo simulation. We show that our measure is among the most important determinants of value creation in M&A deals, substantially increasing the predictive power of models that explain cumulative abnormal returns. Thus, we offer a measure of management practices that identifies the best-performing M&As. Our results are robust to the inclusion of acquirer fixed effects and many control variables, and to several other sensitivity tests. We identify the Q-theory as the key mechanism driving our results

Does risk aversion affect bank output loss? The case of the Eurozone

We propose a new model to infer the evolution of bank-specific output losses due to the uncertainty in bank output prices. Losses are based on bank risk aversion with micro foundations tethered to the uncertainty regarding prices. Our model allows us to measure time-varying bank-specific output losses and risk aversion while taking into account all bank cross-sectional heterogeneity. We employ a panel data set to estimate the input and output elasticities with both parametric and non-parametric techniques. We are the first to document that increasing risk aversion among Eurozone banks during the financial crisis resulted in sizable output losses. Although subdued thereafter, losses have been resurging in recent years. Both conventional and unconventional monetary policy responses by the European Central Bank (ECB) mitigated uncertainty in bank output prices, though unequally so across countries. Certain measures of unconventional monetary policy may have even enhanced bank risk aversion and thereby output losses, but mainly so for large countries