The Impact of Strong Advisor Relationships on Acquisition Performance
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2024-06-28
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en
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Corporates pursue growth through Mergers & Acquisitions, often involving external advisors due to complexity and risk involved. In 2023, the global M&A volume reached 2.5 trillion dollars, with top advisors generating significant revenue. CEOs, lacking experience, seek strategic advice form third-party specialists to navigate these complex deals. Advisors help reduce information asymmetries and possess superior expertise and negotiating skills, potentially leading to better value capture and greater synergies for their clients.
However, the literature frequently criticizes advisors potentially as destructive and self-serving, questioning their value. Despite this manipulative, guileful value image, advisors are still hired, suggesting the need to explore the impact of advisor client relationships. Strong relationships might mitigate negative perceptions by ensuring advisors focus on performance and reputation. We use a sample of 5,955 large acquisitions to test our hypotheses. Evaluating the impact of advisor relationships on acquisition performance by the use of and event study and abnormal returns. The results do not support a value-creating role for advisor relationships. Instead, we find that deals with advisor relationships lower expected value-creation, and thus destroy value. This study shows that the moderating effect of strong repeated collaborations between advisors and companies do not reduce self-serving incentives, and even destroy value in M&A transactions, resulting in significantly worse performance.
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Faculteit der Managementwetenschappen