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Financial Advisors and Shareholder Wealth Gains in Corporate Takeovers

Published online by Cambridge University Press:  06 April 2009

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.

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
Copyright
Copyright © School of Business Administration, University of Washington 2003

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