We provide new evidence on the role of financial advisors in M&As. Contrary to prior studies, top-tier advisors deliver higher bidder returns than their non-top-tier counterparts but in public acquisitions only, where the advisor reputational exposure and required skills set are relatively larger. This translates into a $65.83 million shareholder gain for an average bidder. The improvement comes from top-tier advisors' ability to identify more synergistic combinations and to get a larger share of synergies to accrue to bidders. Consistent with the premium price-premium quality equilibrium, top-tier advisors charge premium fees in these transactions.MERGERS AND ACQUISITIONS (M&As) constitute one of the most important activities in corporate finance, bringing about substantial reallocations of resources within the economy. In 2007 alone, when the most recent merger wave peaked, corporations spent $4.2 trillion on M&A deals worldwide. Investment banks advised on over 85% of these deals by transaction value, generating an estimated $39.7 billion in advisory fees.

Labor restructuring is a key driver of takeovers and the associated synergy gains worldwide.In a difference-in-differences research design, we show that major increases in employment protection reduce takeover activity by 14-27% and the combined firm gains (synergies) by over half. Consistent with the labor channel behind these effects, deals with greater potential for workforce restructuring show a greater reduction in volume, number, and synergies. The reforms do impede layoffs, and the associated wage costs match the magnitude of synergy losses. Offer prices are not fully adjusted, with both bidders and targets exhibiting lower returns following the reforms. Forthcoming on the Journal of Financial Economics JEL classification: J30; G14; G34; K31

a b s t r a c tFirm fixed effects alone explain as much of the variation in acquirer returns as all the firm-and deal-specific characteristics combined. An interquartile range of acquirer fixed effects is over 6%, comparable to the interquartile range of acquirer returns. Acquirer returns persist over time, but mainly at the top end of the distribution. Persistence continues under different chief executive officers (CEOs), and attributes of the broader management team do not explain the fixed effect. Firm-specific heterogeneity in acquirer returns suggests that some organizations are extraordinary acquirers irrespective of the leadership at the top and the deal structures they choose. Implications for the M&A research are discussed.

Firm fixed effects alone explain as much of the variation in acquirer returns as all the firm-and deal-specific characteristics combined. An interquartile range of acquirer fixed effects is over 6%, comparable to the interquartile range of acquirer returns. Acquirer returns persist over time, but mainly at the top end of the distribution. Persistence continues under different chief executive officers (CEOs), and attributes of the broader management team do not explain the fixed effect. Firm-specific heterogeneity in acquirer returns suggests that some organizations are extraordinary acquirers irrespective of the leadership at the top and the deal structures they choose. Implications for the M&A research are discussed.

No abstract