In-house deals: Agency and information asymmetry perspectives
Open Access
- 4 January 2021
- journal article
- Published by Virtus Interpress in Corporate Ownership and Control
- Vol. 18 (2), 8-19
- https://doi.org/10.22495/cocv18i2art1
Abstract
Mergers and Acquisitions (M&A) advisors add value by overcoming the information asymmetries between acquirers and targets, but may also push bad deals through due to incentive misalignment stemming from contingent fees. In-house deals are those acquisitions with in-house advisors. We examine the wealth effect of M&A deals advised by in-house advisors versus outside advisors. About 15% of acquisitions are done via in-house advisors. In-house deals result in higher CARs to targets, insignificant wealth effects to acquirers, but lower cumulative abnormal combined returns. This finding is consistent with the view that the information asymmetry problem is more severe than the agency conflict in non-financial acquisitions. Thus, targets are more likely to extract wealth away from the acquirers, or the overall deal quality is lower. Also, consistent with the view that investment banks have an incentive to see deals completed, the completion rate is higher for deals with an outside advisorKeywords
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