Investment Banks as Insiders and the Market for Corporate Control

Andriy Bodnaruk; Massimo Massa; Andrei Simonov

doi:10.1093/rfs/hhp043

Investment Banks as Insiders and the Market for Corporate Control

Andriy Bodnaruk¹; Massimo Massa²; Andrei Simonov^3,4

¹ University of Notre Dame · ² Institut National de Statistique et d'Economie Appliquée · ³ Center for Economic and Policy Research · ⁴ Michigan State University

Review of Financial Studies 2009

We study holdings in M&A targets by financial conglomerates which affiliated investment banks advise the bidders. We show that advisors take positions in the targets before M&A announcements. These stakes are positively related to the probability of observing the bid and to the target premium. We argue that this can be explained in terms of advisors, privy to important information about the deal, investing in the target in the expectation of its price to increase. We document the high profits of this strategy. We also document a positive relationship between the advisory stake and the deal characteristics. The advisory stake is positively related to the likelihood of deal completion and to the termination fees. However, these deals are not wealth-creating: there is a negative relation between the advisory stake and the viability of the deal. These results provide new insights into the conflicts of interest affecting financial

DOI: 10.1093/rfs/hhp043
Volume: 22 (12)
Pages: 4989-5026
Language: en
Export: BibTeX
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