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Dual Role Advisors in Acquisitions: Examining the Effect on Shareholder Value

Bakker, Martijn LU and Van Veen, Koen LU (2015) BUSN89 20151
Department of Business Administration
Abstract
This study examines the effect of dual role advisors in acquisitions on shareholder value creation for both the acquirer and target. Dual role advisors are advisors that provide both advisory services to either the acquirer or target and are involved in underwriting or syndicating securities issued to finance the deal. Previous studies find that being a dual role advisor can create a conflict of interest in which the investment bank’s advice to either the acquirer or target is impacted by the bank’s desire to obtain financing fees from financing the transaction. Our study contributes to the existing literature by studying the effect of both acquirer and target advisors in dual roles on shareholder value creation and by analyzing how the... (More)
This study examines the effect of dual role advisors in acquisitions on shareholder value creation for both the acquirer and target. Dual role advisors are advisors that provide both advisory services to either the acquirer or target and are involved in underwriting or syndicating securities issued to finance the deal. Previous studies find that being a dual role advisor can create a conflict of interest in which the investment bank’s advice to either the acquirer or target is impacted by the bank’s desire to obtain financing fees from financing the transaction. Our study contributes to the existing literature by studying the effect of both acquirer and target advisors in dual roles on shareholder value creation and by analyzing how the amount of proceeds of the deal-related security issue(s) impacts this relationship. Using a sample of 263 acquisitions involving U.S. non-financial firms in the period between January 1, 2000 and December 31, 2014, this study provides only partial support for the fear that dual role advisors provide biased advice in order to secure themselves of obtaining lucrative financing fees. More specifically, it is shown that deals with an acquirer advisor in a dual role are completed at significantly higher premiums. However, this study does not find that this association increases in magnitude with an increase in the total amount of proceeds of the deal-related security issue(s) and it also does not find a significant association between dual role advice for the acquirer and acquirer announcement returns. Furthermore, after controlling for the proven endogenous nature of target advisors in dual roles, this study does not find evidence for an influence of target advisors in dual roles on either deal premiums or acquirer announcement returns, even in deals with sizeable security issues. As such, this research concludes by stating that the conflict of interest only exists for acquirer advisors in dual roles while with target advisors in dual roles no conflict of interest exists. (Less)
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author
Bakker, Martijn LU and Van Veen, Koen LU
supervisor
organization
course
BUSN89 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Dual role advisors, acquisition advice, conflict of interest, shareholder value.
language
English
id
5470146
date added to LUP
2015-06-16 16:36:45
date last changed
2015-06-16 16:36:45
@misc{5470146,
  abstract     = {This study examines the effect of dual role advisors in acquisitions on shareholder value creation for both the acquirer and target. Dual role advisors are advisors that provide both advisory services to either the acquirer or target and are involved in underwriting or syndicating securities issued to finance the deal. Previous studies find that being a dual role advisor can create a conflict of interest in which the investment bank’s advice to either the acquirer or target is impacted by the bank’s desire to obtain financing fees from financing the transaction. Our study contributes to the existing literature by studying the effect of both acquirer and target advisors in dual roles on shareholder value creation and by analyzing how the amount of proceeds of the deal-related security issue(s) impacts this relationship. Using a sample of 263 acquisitions involving U.S. non-financial firms in the period between January 1, 2000 and December 31, 2014, this study provides only partial support for the fear that dual role advisors provide biased advice in order to secure themselves of obtaining lucrative financing fees. More specifically, it is shown that deals with an acquirer advisor in a dual role are completed at significantly higher premiums. However, this study does not find that this association increases in magnitude with an increase in the total amount of proceeds of the deal-related security issue(s) and it also does not find a significant association between dual role advice for the acquirer and acquirer announcement returns. Furthermore, after controlling for the proven endogenous nature of target advisors in dual roles, this study does not find evidence for an influence of target advisors in dual roles on either deal premiums or acquirer announcement returns, even in deals with sizeable security issues. As such, this research concludes by stating that the conflict of interest only exists for acquirer advisors in dual roles while with target advisors in dual roles no conflict of interest exists.},
  author       = {Bakker, Martijn and Van Veen, Koen},
  keyword      = {Dual role advisors,acquisition advice,conflict of interest,shareholder value.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Dual Role Advisors in Acquisitions: Examining the Effect on Shareholder Value},
  year         = {2015},
}