Relationship Advisors Guiding Financially Weak Targets in M&A Deals: Conflict of Interest and Reputation Concerns

Hang Thi Dieu Nguyen and Hsiangping Tsai

Finance Research Letters, 2024, vol. 61, issue C

Abstract: This study analyzes the impact of financially weak target firms engaging their relationship banks as M&A advisors, specifically current lender advisors and prior relationship advisors. We observe an increased likelihood of such targets hiring current lender advisors who connect them with acquirers with solid cash flows. However, engaging these advisors results in lower premiums and negative market perceptions, indicating possible conflicts of interest. Over time, these conflicts tend to decrease, revealing a growing discernment by the targets. In contrast, engaging prior relationship advisors does not seem beneficial, underscoring a potential drawback tied to outdated information.

Keywords: M&As; Financial advisor; Financial weakness; Relationship bank (search for similar items in EconPapers)
JEL-codes: G21 G24 G34 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000436

DOI: 10.1016/j.frl.2024.105013

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