Do Bidders Hire Top-Tier Investment Banks to Certify Value?

Are good financial advisors really good? The performance of investment banks in the M&A market

“…8 At first sight, employing quality investment banks seems to have not resulted in quality value gains for acquirer shareholders which is consistent with prior research (e.g. Servaes and Zenner 1996;Rau and Rodgers 2002;and Da Silva Rosa et al 2004). These gains are 8 I closely investigated the losses of In-House deals and found that they are mainly driven by deals completed by very large acquirers, those were Lucent Technologies, Cisco Systems, Intel Corp. and AOL.…”

“…Rau (2000), for merger deals, and Rau and Rodgers (2002) document a lower announcement return for deals involving top tier advisors. Similar findings were reported by Da Silva Rosa et al (2004) for the Australian market.…”

Financial advisors, financial crisis, and shareholder wealth in bank mergers

“…Bowers and Miller (1990) report that bidder returns are lower when first-tier investment banks are used. Similar findings have also been documented in the studies of McLaughlin (1992), Servaes and Zenner (1996), Rau (2000), Rau and Rodgers (2002), Hunter and Jagtiani (2003) and Allen et al (2004). McLaughlin (1992) argues that financial advisors with high reputation tend to be involved in difficult transactions and thus require higher premia.…”

“…McLaughlin (1992), Servaes and Zenner (1996), Rau (2000), Rau and Rodgers (2002), Hunter and Jagtiani (2003), and Allen et al (2004). However, the differences in returns between banks with different tiers of advisors are not statistically significant.…”

The Advising Investment Bank's Industry Expertise and Access to the Bidder's Private Information: Their Positive Influence on the Performance in Acquisition Sequences

“…The agency problems arise between the managers of the bidding company, its shareholders and possibly also the investment bank. According to Rau & Rodgers (2002) investment banks are hired to certify the value of the acquisition to shareholders that the management is not empire building and that the M&A adds value. The bank itself has no interest to get involved in any agency conflict with the management and the shareholders.…”