When you also borrow money from your financial advisors : dual role of investment banks in M&A

並購發起方從財務顧問處融資 : 並購中投資銀行的雙重身份

Student thesis: Master's Thesis

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Award date15 Jul 2014

Abstract

Investment banks serving as both deal advisors and lenders in mergers and acquisitions are rarely documented in the prior literature. Using a sample of deals where acquirers sought external financing to fund their transactions, in which detailed financial advisors and bank loan financing information are available, I find that investment bank's dual role delivers lower returns for bidders around the deal announcement day than the non-dual role related acquirers. In the meanwhile, I find that investment banks tend to collect a significantly higher spread of the loans and the dual role-related loans provided by their advisors suffered shorter loan maturities, higher likelihood to be secured and more covenant restrictions bundled. And spread of the dual role-related loans is even higher than other loans in the bidders' borrowing history. Additional tests show that the bank's dual role lowers the premium paid by the acquirers, but does not seem to help shorten deal duration or be conducive to the subsequent performance for their clients. Taken together, these evidences suggest that bidders may have to pay a relatively high price to their bankers to assure the accomplishment of certain biddings and this kind of cross-selling service creates conflicts of interest between the acquirers and bankers.

    Research areas

  • Investment banking, Consolidation and merger of corporations