This paper reexamines the beta-return relation through the lens of time-varying risk aversion. We show that the security market line (SML) depends critically on the level of aggregate risk aversion. During periods of high risk aversion, the SML exhibits a positive slope and an intercept that is statistically indistinguishable from zero, with investor sentiment playing only a minor role. During periods of low risk aversion, the SML slope becomes negative and the intercept is significantly positive. Investor sentiment affects the SML only when risk aversion is low. These patterns are robust across alternative portfolio constructions, longer investment horizons, and multiple measures of risk aversion.

This paper investigates whether top-tier M&A investment bankers (financial advisors) create value for acquirers with different financial conditions in both the short and long term via analyzing 3420 US deals during 1990–2012. In this paper, deals are divided into three groups based on acquirer financial constraints – acquisitions by constrained, neutral and unconstrained firms. We find that the effects of top-tier bankers are dependent on acquirer financial conditions. Specifically, top-tier advisors improve performance for constrained acquirers rather than neutral, and unconstrained acquirers. Our results show that top-tier investment bankers improve constrained acquirers’ short- (5 days) and long-term (36 months) performance by 1.45% and 24.27% respectively, after controlling for firm, deal and market characteristics. For deals with investment banker involvement, constrained acquirers advised by top-tier advisors have the lowest deal completion rate, and pay the lowest bid premiums; while unconstrained acquirers that retain top-tier investment bankers have the highest deal completion rate, and pay relatively high bid premiums. Our findings imply that constrained acquirers tend to retain top-tier investment bankers to gain superior synergy, while unconstrained acquirers appear to retain top-tier investment bankers to ensure the deal completion.