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INVESTMENT BANKS IN DUAL ROLES: ACQUIRER M&A ADVISORS AS UNDERWRITERS

Authors


  • We would like to thank the associate editor, James Ligon, and the referee, Jin Jeon, for their valuable comments and suggestions. We would also like to thank Thomas Chemmanur, Basak Tanyeri, Chi Wan, session participants at the 2010 Financial Management Association annual meetings, 2012 Eastern Finance Association meetings, and 2012 Financial Management Association European meetings for many helpful comments.

Abstract

We analyze the dual role of investment banks that provide advice to acquiring firms and act as underwriters on the securities issued to finance the acquisition. We find that the dual role of acquirer advisors is associated with lower acquirer announcement returns, higher target announcement returns, higher acquisition premiums, faster completion speeds, and higher divestiture rates. The dual role of the acquirer advisor does not lead to lower underwriting fees or issue costs. Our results are robust to controlling for the endogeneity of selection of the acquirer advisor as underwriter on the security issue used to finance the acquisition.

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