The Banking Relationship's Role in the Choice of the Target's Advisor in Mergers and Acquisitions

Gianfranco Forte, Giuliano Iannotta and Marco Navone
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Gianfranco Forte: Department of Finance, University of Bocconi
Giuliano Iannotta: Department of Finance, University of Bocconi

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: We analyse the factors influencing the target company's choice of bank advisor in mergers and acquisitions (M&As). We first examine the choice of hiring an advisor, which is nontrivial, since in one-third of transactions our sample target companies did not hire one. We also analyse the choice to hire as advisor a bank with a strong prior relationship with the company (i.e., the main bank). Using data on 473 European M&A transactions completed in the period 1994–2003, we find evidence that the decision to hire an advisor depends on three main factors: (i) the intensity of the previous banking relationship, (ii) the reputation of the bidder company's advisor, and (iii) the complexity of the deal. We also investigate the impact of the bank advisor on shareholder wealth. We find that the abnormal returns of target company shareholders increase with the intensity of the previous banking relationship, thus indicating a ‘certification role’ on the part of investment banks.

Pages: 16 pages
Date: 2010-01-01
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Citations: View citations in EconPapers (9)

Published in: Forte, G., Iannotta, G. and Navone, M., 2010, "The banking relationship's role in the choice of the target's advisor in mergers and acquisitions", European Financial Management, 16(4), 686-701.

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