Do Investment Banks Matter for M&A Returns?
Review of Financial Studies, Vol. 24, No. 7, pp. 2286-2315, July 2011
EFA 2007 Ljubljana Meetings Paper
41 Pages Posted: 21 Dec 2006 Last revised: 7 Dec 2011
See all articles by Jack Bao
Jack Bao
University of Delaware - Department of Finance
Alex Edmans
London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
Date Written: December 20, 2010
We document a significant investment bank fixed effect in the announcement returns of an M&A deal. The inter-quartile range of bank fixed effects is 1.26%, compared to a full-sample average return of 0.72%. The results remain significant after controlling for the component of returns attributable to the acquirer. Our findings suggest that investment banks matter for M&A outcomes, and contrast earlier studies which show no positive link between various measures of advisor quality and M&A returns. Differences in average returns across banks are also persistent over time and predictable from prior performance. Clients do not chase past returns, which may explain why persistence exists in M&A performance while it is absent in mutual funds.
Keywords: Investment Banking, Persistence, Mergers & Acquisitions
JEL Classification: G24, G34
Bao, Jack and Edmans, Alex, Do Investment Banks Matter for M&A Returns? (December 20, 2010). Review of Financial Studies, Vol. 24, No. 7, pp. 2286-2315, July 2011; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=952935
University of Delaware - Department of Finance ( email )
Alfred Lerner College of Business and Economics
Alex Edmans (Contact Author)
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
London NW1 4SA
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
Centre for Economic Policy Research (CEPR) ( email )