Financial Advisors and Shareholder Wealth Gains in Corporate Takeovers

Jayant R. Kale, Omesh Kini and Harley E. Ryan

Journal of Financial and Quantitative Analysis, 2003, vol. 38, issue 3, 475-501

Abstract: We examine the effect of financial advisor reputation on wealth gains in corporate takeovers. In view of the adversarial nature of a takeover, we construct a measure of the relative reputation of the advisor. We document that the absolute wealth gain as well as the share of the total takeover wealth gain accruing to the bidder (target) increases (decreases) as the reputation of the bidder's advisor increases relative to that of the target. We also find that the total wealth created in the takeover is positively related to the reputation of bidder and target advisors. While bidder advisor reputation is positively related to the probability of bid success in our sample, we also present some evidence to suggest that bidders with better advisors are more likely to withdraw from potentially value-destroying takeovers.

Date: 2003
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