Hostname: page-component-6dbcb7884d-4tctr Total loading time: 0 Render date: 2025-02-14T03:14:45.307Z Has data issue: false hasContentIssue false
  • English
  • Français

Financial Advisors and Shareholder Wealth Gains in Corporate Takeovers

Published online by Cambridge University Press:  06 April 2009

Jayant R. Kale ,
Omesh Kini  and
Harley E. Ryan Jr
Jayant R. Kale
Affiliation:
jkale@gsu.edu, J. Mack Robinson College of Business, Georgia State University, Department of Finance, Atlanta, GA 30303;
Omesh Kini
Affiliation:
okini@gsu.edu, J. Mack Robinson College of Business, Georgia State University, Department of Finance, Atlanta, GA 30303;
Harley E. Ryan Jr
Affiliation:
cryan@lsu.edu, E. J. Ourso College of Business Administration, Department of Finance, Louisiana State University, Baton Rouge, LA 70803.
Get access Rights & Permissions [Opens in a new window]

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 38 , Issue 3 , September 2003 , pp. 475 - 501
Copyright
Copyright © School of Business Administration, University of Washington 2003

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Agrawal, A., and Jaffe, J. F.. “Do Takeover Targets Under-Perform? Evidence from Operating and Stock Returns.” Journal of Financial and Quantitative Analysis (forthcoming 2003).CrossRefGoogle Scholar
Alchian, A. “Uncertainty, Evolution and Economic Theory.” Journal of Political Economy, 58 (1950), 211–221.CrossRefGoogle Scholar
Allen, F. “Reputation and Product Quality.” RAND Journal of Economics, 15 (1984), 311–327.CrossRefGoogle Scholar
Beatty, R. P., and Ritter, J. R.. “Investment Banking, Reputation, and the Underpricing of Initial Public Offerings.” Journal of Financial Economics, 15 (1986), 213–232.CrossRefGoogle Scholar
Berger, P. G., and Ofek, E.. “Diversification's Effect on Firm Value.” Journal of Financial Economics, 37 (1995), 39–65.CrossRefGoogle Scholar
Booth, J. R., and Smith, R. L.. “Capital Raising, Underwriting, and the Certification Hypothesis.” Journal of Financial Economics, 15 (1986), 261–281.CrossRefGoogle Scholar
Bowers, H., and Miller, R.. “Choice of Investment Banker and Shareholders' Wealth of Firms Involved in Acquisitions.” Financial Management, 19 (1990), 34–44.CrossRefGoogle Scholar
Bradley, M.; Desai, A.; and Kim, H.. “The Rationale behind Interfirm Tender Offers.” Journal of Financial Economics, 11 (1983), 183–206.CrossRefGoogle Scholar
Bradley, M.; Desai, A.; and Kim, H.. “Synergistic Gains from Corporate Acquisitions and their Division between the Stockholders of Target and Acquiring Firms.” Journal of Financial Economics, 21 (1988), 3–40.CrossRefGoogle Scholar
Brealey, R. A., and Myers, S. C.. Principles of Corporate Finance. New York, NY: The McGraw-Hill Companies (2000).Google Scholar
Carter, R. B., and Manaster, S.. “Initial Public Offerings and Underwriter Reputation.” Journal of Finance, 45 (1990), 1045–1067.CrossRefGoogle Scholar
Carter, R. B.; Dark, F. H.; and Singh, A. K.. “Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks.” Journal of Finance, 53 (1998), 285–311.CrossRefGoogle Scholar
Chemmanur, T. J., and Fulghieri, P.. “Investment Bank Reputation, Information Production, and Financial Intermediation.” Journal of Finance, 49 (1994), 57–79.CrossRefGoogle Scholar
Comment, R., and Schwert, G. W.. “Poison or Placebo? Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures.” Journal of Financial Economics, 39 (1995), 3–43.CrossRefGoogle Scholar
Fuller, K.; Netter, J.; and Stegemoller, M.. “What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions.” Journal of Finance, 57, (2002), 1763–1793.CrossRefGoogle Scholar
Greene, W. H. “Sample Selection Bias as a Specification Error: Comment.” Econometrica, 49 (1981), 795–798.CrossRefGoogle Scholar
Heckman, J. J. “Sample Selection Bias as a Specification Error.” Econometrica, 57 (1979), 153–161.CrossRefGoogle Scholar
Holmstrom, B., and Nalebuff, B.. “To the Raider Goes the Surplus? A Reexamination of the Free-Rider Problem.” Journal of Economics & Management Strategy, 1 (1992), 37–62.Google Scholar
Jarrell, G.; Brickley, J.; and Netter, J.. “The Market for Corporate Control: The Empirical Evidence since 1980.” Journal of Economic Perspectives, 2 (1988), 49–68.CrossRefGoogle Scholar
Jarrell, G. A., and Poulsen, A. B.. “The Returns to Acquiring Firms in Tender Offers: Evidence from Three Decades.” Financial Management, 18 (1989), 12–19.CrossRefGoogle Scholar
Jensen, M. C. “The Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76 (1986), 323–329.Google Scholar
Jensen, M. C.. “Takeovers: Their Causes and Consequences.” Journal of Economic Perspectives, 2 (1988), 21–48.CrossRefGoogle Scholar
Karpoff, J. M., and Lott, J. R. Jr “The Reputational Penalty Firms Bear from Committing Criminal Fraud.” Journal of Law and Economics, 36 (1993), 757–802.CrossRefGoogle Scholar
Karpoff, J. M., and Lott, J. R. Jr “On the Determinants and Importance of Punitive Damage Awards.” Journal of Law and Economics, 42 (1999), 527–573.CrossRefGoogle Scholar
Klein, B., and Leffler, K. B.. “The Role of Market Forces in Assuring Contractual Performance.” Journal of Political Economy, 89 (1981), 615–641.CrossRefGoogle Scholar
Malatesta, P. H. “The Wealth Effect of Merger Activity and the Objective Functions of Merging Firms.” Journal of Financial Economics, 11 (1983), 155–181.CrossRefGoogle Scholar
Maquieira, C. P.; Megginson, W. L.; and Nail, L.. “Wealth Creation Versus Wealth Redistribution in Pure Stock-for-Stock Mergers.” Journal of Financial Economics, 48 (1998), 3–33.CrossRefGoogle Scholar
McLaughlin, R. M. “Investment Banking Contracts in Tender Offers.” Journal of Financial Economics, 28 (1990), 209–232.CrossRefGoogle Scholar
McLaughlin, R. M. “Does the Form of Compensation Matter?” Journal of Financial Economics, 32 (1992), 223–260.CrossRefGoogle Scholar
Megginson, W., and Weiss, K.. “Venture Capitalist Certification in Initial Public Offerings.” Journal of Finance, 46 (1991), 879–904.CrossRefGoogle Scholar
Michel, M.; Shaked, I.; and Lee, Y.. “An Evaluation of Investment Banker Acquisition Advice: The Shareholders' Perspective.” Financial Management, 20 (1991), 40–49.CrossRefGoogle Scholar
Mitchell, M. L., and Lehn, K.. “Do Bad Bidders Become Good Targets?” Journal of Political Economy, 98 (1990), 372–398.CrossRefGoogle Scholar
Morck, R.; Shleifer, A.; and Vishny, R.W.. “Do Managerial Objectives Drive Bad Acquisitions.” Journal of Finance, 45 (1990), 31–48.CrossRefGoogle Scholar
Osborne, M. J., and Rubinstein, A.. Bargaining and Markets. San Diego, CA: Academic Press (1990).Google Scholar
Rau, P. R. “Investment Bank Market Share, Contingent Fee Payments, and the Performance of Acquiring Firms.” Journal of Financial Economics, 56 (2000), 293–324.Google Scholar
Roll, R. “The Hubris Hypothesis of Corporate Takeovers.” Journal of Business, 59 (1986), 197–216.CrossRefGoogle Scholar
Schwert, G. W. “Markup Pricing in Mergers and Acquisitions.” Journal of Financial Economics, 41 (1996), 153–192.CrossRefGoogle Scholar
Schwert, G. W. “Hostility in Takeovers: In the Eyes of the Beholder?” Journal of Finance, 55 (2000), 2599–2640.CrossRefGoogle Scholar
Servaes, H., and Zenner, M.. “The Role of Investment Banks in Acquisitions.” Review of Financial Studies, 9 (1996), 787–816.CrossRefGoogle Scholar
Shapiro, C. “Premiums for High Quality Products as Returns to Reputation.” Quarterly Journal of Economics, 98 (1983), 659–679.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R. W.. “Large Shareholders and Corporate Control.” Journal of Political Economy, 94 (1986), 461–488.CrossRefGoogle Scholar
Stulz, R. M.; Walkling, R. A.; and Song, M. H.. “The Distribution of Target Ownership and the Division of Gains in Successful Takeovers.” Journal of Finance, 45 (1990), 817–833.CrossRefGoogle Scholar
Titman, S., and Trueman, B.. “Information Quality and the Valuation of New Issues.” Journal of Accounting and Economics, 8 (1986), 159–172.CrossRefGoogle Scholar
Walkling, R. A. “Predicting Tender Offer Success: A Logistic Analysis.” Journal of Financial and Quantitative Analysis, 20 (1985), 461–478.CrossRefGoogle Scholar