ADVERSE CONTRACT INCENTIVES AND INVESTMENT BANKER REPUTATION: TARGET FIRM TENDER OFFER FEES

Robyn M. McLaughlin

Journal of Financial Research, 1996, vol. 19, issue 1, 135-156

Abstract: I measure the potential economic importance of fee‐contract incentives and investment banker reputation as factors that can mitigate conflicts of interest between investment bankers and their target firm clients in tender offers. I find that the fee contracts used between target firms and their investment bankers contain incentives that can create substantial conflicts of interest. Simulated losses from these adverse incentives can be large—up to 16.7 percent of target firm value. I also find, however, that when investment banker reputation capital is included in the simulation, losses are substantially reduced.

Date: 1996
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