In Mergers and Acquisitions (M&As) a significant proportion of targets’ equity is owned by financial institutions that simultaneously own targets’ bonds (“dual holders”). Targets with larger equity ownership by dual holders have lower M&A equity premia and larger abnormal bond returns, particularly when dual holders stand to benefit more from appreciation of their bond stakes, e.g., when their bond ownership in the target is large and the target credit rating is non-investment grade. Dual holders are more likely to vote in favor of the merger proposal. Our results suggest the presence of coordination of decisions within dual holding financial conglomerates in M&A targets.

Strong conflicts of interest exist within investment banks: the investment banking division possesses substantial private information, and the asset management division seeks such information. This raises the question of whether the asset management division benefits from an information advantage on client firms. While prior examinations of advisor bank trading in client firms have focused on stocks and found mixed results, we argue that the options market represents a more attractive venue for such trading. We find significant evidence of advisor banks trading in client firm options ahead of merger announcements, but no evidence of similar trading in client firm stock. Received October 22, 2015; editorial decision June 5, 2018 by Editor Philip Strahan.