When It Pays to Pay Your Investment Banker : New Evidence on the Role of Financial Advisors in M&As

We provide new evidence on the role of financial advisors in M&As. Contrary to prior studies, top-tier advisors deliver higher bidder returns than their non-top-tier counterparts but in public acquisitions only, where the advisor reputational exposure and required skills set are relatively larger. This translates into 65.83 US$ million shareholder gain for an average bidder. The improvement comes from top-tier advisors' ability to identify more synergistic combinations and to get a larger share of synergies to accrue to bidders. Consistent with the premium price – premium quality equilibrium, top-tier advisors charge premium fees in these transactions