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

In this paper we analyze the factors that influence the target companies' choice of a bank advisor during a merger or acquisition process. Particularly we analyze the choice of hiring an advisor in the first place (non trivial since for more than one third of the mergers in our sample the target company chose not to hire an advisor), and the choice to hire, as advisor, a bank with a strong prior relationship with the company. Using data on 473 Mamp;A European transactions completed the 1994-2003 period we find evidence that the choice of the bank advisor depends on three main factors: i) the intensity of previous banking relationships of the target company, ii) the reputation of the bidder company's advisor, and iii) the complexity of the deal. We also investigate the impact of a bank advisor on shareholders' wealth. We find that the abnormal return of target companies' shareholders increases with the intensity of previous banking relationships, thus indicating a quot;certification rolequot; of investment banks.This paper is currently reserved to Carefin sponsors and will be made public on SSRN after a short embargo. Please visit the CAREFIN website to learn more on how to get the paper