Banker Fees and Acquisition Premia for Targets in Cash Tender Offers: Challenges to the Popular Wisdom on Banker Conflicts


*Donna M. Hitscherich, Columbia University Graduate School of Business, 3022 Broadway, New York, NY 10027; email: Calomiris is Professor, Columbia University Graduate School of Business and member NBER; Hitscherich is Professor (by contract), Columbia University Graduate School of Business.


Our results are broadly consistent with the predictions of a benign view of the role of investment banks in advising acquisition targets. Fees to investment banks are correlated with attributes of transactions and target firms in ways that make sense if banks are being paid for processing information. The more contingent (and, therefore, risky) the fees, the higher they tend to be, all else held constant. Variation in target acquisition premia also can be explained by fundamental deal attributes. Contrary to the jaundiced view of fairness opinions, greater fixity of fees paid by targets is not generally associated with higher acquisition premia, and there is no evidence that investment banks are suborned by acquirors with whom they have had a prior banking relationship.