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Expert Advice: Industry Expertise of M&A Advisors and Acquirer Shareholder Returns

Published online by Cambridge University Press:  26 August 2021

Cong Wang ,
Fei Xie Open the ORCID record for Fei Xie [Opens in a new window]  and
Kuo Zhang
Cong Wang
Affiliation:
Chinese University of Hong Kong Shenzhen School of Management and Economics and Shenzhen Finance Institutewangcong@cuhk.edu.cn
Fei Xie
Affiliation:
University of Delaware Alfred Lerner College of Business and Economics and European Corporate Governance Institute (ECGI)xief@udel.edu
Kuo Zhang*
Affiliation:
Shanghai Jiao Tong University Antai College of Economics and Management
*
kuozhang@sjtu.edu.cn (corresponding author)
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Abstract

We find that acquirers create higher shareholder returns when advised by investment banks with more experience in the target industry. This finding is stronger when acquirers face more difficulties understanding and evaluating the targets. Further analyses show that these banks help acquirers avoid overpaying for targets and thus capture more of the deal synergy rather than making deals generating higher synergy. Our results are robust to controlling for an exhaustive set of determinants of acquirer returns and an identification strategy that exploits exogenous shocks to the supply of investment banks with target-industry experience.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 2 , March 2022 , pp. 599 - 628
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank Vikas Agarwal, Allen Berger, Sinan Gokkaya, Omesh Kini, Paul Laux, Paul Malatesta (the editor), Pedro Matos, Harold Mulherin, Nickolaos Travlos (the referee), and seminar participants at the Cheung Kong Graduate School of Business, Chinese University of Hong Kong, Clemson University, Georgia State University, the University of Delaware, the University of Georgia, and the University of South Carolina for very helpful comments. Zhang acknowledges financial support from the National Natural Science Foundation of China (No. 71902115).

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