Research Discussion Papers, Bank of Finland
No 28/2012:
Does relationship matter? The choice of financial advisors
Bill B. Francis, Iftekhar Hasan ()
and Xian Sun
Abstract: Using a sample of U.S. mergers and acquisitions, this
study evaluates how banking relationships influence acquirers’ choice of
financial advisors. Specifically, it examines: i) acquirers’ previous
relationships with advisors in various financial activities: M&A
advisories, equity issuings and lending activities; ii) the optimism of
analyst recommendations; and iii) how acquirers’ past satisfaction with
their financial advisors determines the choice of financial advisors.
Overall, the findings suggest that the influence of banking relationships
on a firm’s choice of financial institutions is limited in the area of M&A
advisory business. The implications from the traditional “relationship
banking” studies may not be suitable to explain how firms choose advisors,
due to the wide variety of practices in investment banking activities. The
evidence portrays that firms with M&A experience are more likely to switch
financial advisors with poor deal outcomes. Firms without M&A experience,
on the other hand, are more likely to choose their underwriters as
financial advisors, especially when they provide overly optimistic analyst
coverage prior to the transactions.
Keywords: mergers and acquisitions; financial advisors; relationship banking; analyst coverage; conflict of interests; proactive; (follow links to similar papers)
JEL-Codes: G10; G14; G24; G28; G31; G34; (follow links to similar papers)
56 pages, October 18, 2012
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