The Role of Financial Advisors in M&As: Do Domestic and Foreign Advisors Differ?

Kai-Shi Chuang

Chapter 76 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 2565-2597 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study investigates the role of financial advisors on the influence of deal outcomes in M&As. In particular, this study examines whether firms hired by domestic financial advisors can outperform those by foreign counterparts. Using 333 targets and 949 bidders from 1995 to 2011, the results show that targets take more (less) time to complete the deals when hiring low-reputable (foreign) financial advisors. When bidders hire low-reputable financial advisors and foreign advisors, bidders can complete the deals faster. In addition, the evidence indicates that low-reputable financial advisors create higher gains to both targets and bidders around the announcement date. However, bidders hired by less prestigious financial advisors suffer larger losses during post-announcement period. Interestingly, when hiring domestic advisors, both targets and bidders obtain higher announcement returns. The regression analysis further reveals that bidders obtain higher post-announcement returns when bidders hire domestic advisors. Hence, this study reveals that domestic advisors play an important role in M&As.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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