The information role of advisors in mergers and acquisitions: evidence from acquirers hiring targets’ ex-advisors

We examine the information role of financial advisors by focusing on mergers and acquisitions in which acquiring firms hire target firms’ ex-advisors. We document that by employing targets’ ex-advisors, acquirers pay lower takeover premiums and secure a larger proportion of merger synergies. The corresponding targets exhibit lower announcement returns and are less likely to be propositioned by competing bidders. These results indicate that acquirers take advantage of value-relevant information about targets through targets’ ex-advisors, and achieve bargaining advantages in deal negotiations. In contrast, we document no discernible value effects when targets hire acquirers’ ex-advisors, suggesting that the information role of acquirers’ ex-advisors hired by targets is weaker than that of targets’ ex-advisors hired by acquirers

Industry expertise, information leakage, and the choice of M&A advisors

This paper examines the impacts of M&A advisors’ industry expertise on firms’ choice of advisors in mergers and acquisitions. We show that an investment bank's expertise in merger parties’ industries increases its likelihood of being chosen as an advisor, especially when the acquisition is more complex, and when a firm in M&A has less information about the merger counterparty. However, due to the concerns about information leakage to industry rivals through M&A advisors, acquirers are reluctant to share advisors with rival firms in the same industry, and they are more likely to switch to new advisors if their former advisors have advisory relationship with their industry rivals. In addition, we document that advisors with more industry expertise earn higher advisory fees and increase the likelihood of deal completion.Chang acknowledges financial support from Rega Capital Management Limited and Academic Research Fund Tier 1 provided by Ministry of Education (Singapore). Shekhar acknowledgesfunding provided under the Faculty Research Grant scheme of the Faculty of Economics and Commerce, the University of Melbourne. Tam acknowledges research funding (MYRG074(Y1-L2)-FBA11-THK) provided by University of Macau

Industry expertise, information leakage, and the choice of M&A advisors

This paper examines the impacts of M&A advisors’ industry expertise on firms’ choice of advisors in mergers and acquisitions. We show that an investment bank's expertise in merger parties’ industries increases its likelihood of being chosen as an advisor, especially when the acquisition is more complex, and when a firm in M&A has less information about the merger counterparty. However, due to the concerns about information leakage to industry rivals through M&A advisors, acquirers are reluctant to share advisors with rival firms in the same industry, and they are more likely to switch to new advisors if their former advisors have advisory relationship with their industry rivals. In addition, we document that advisors with more industry expertise earn higher advisory fees and increase the likelihood of deal completion.Chang acknowledges financial support from Rega Capital Management Limited and Academic Research Fund Tier 1 provided by Ministry of Education (Singapore). Shekhar acknowledgesfunding provided under the Faculty Research Grant scheme of the Faculty of Economics and Commerce, the University of Melbourne. Tam acknowledges research funding (MYRG074(Y1-L2)-FBA11-THK) provided by University of Macau