Investment Banks as Insiders and the Market for Corporate Control

Massimo Massa, Andrei Simonov and Andriy Bodnaruk

No 6953, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study holdings in M&A targets by financial conglomerates which affiliated investment banks advise the bidders. We show that advisors take positions in the targets before M&A announcements. These stakes are positively related to the probability of observing the bid and to the target premium. We argue that this can be explained in terms of advisors, privy to important information about the deal, investing in the target in the expectation of its price to increase. We document the high profits of this strategy. We also document a positive relationship between the advisory stake and the deal characteristics. The advisory stake is positively related to the likelihood of deal completion and to the termination fees. However, these deals are not wealth-creating: there is a negative relation between the advisory stake and the viability of the deal. These results provide new insights into the conflicts of interest affecting financial intermediaries simultaneously advising on deals and investing in equities.

Keywords: Insider trading; Mergers and acquisitions; Risk arbitrage (search for similar items in EconPapers)
JEL-codes: G23 G32 G34 (search for similar items in EconPapers)
Date: 2008-09
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP6953 (application/pdf)

Related works:
Journal Article: Investment Banks as Insiders and the Market for Corporate Control (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6953

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6953

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().