Acquisition premiums when investment banks invest their own money in the deals they advise and when they do not: Evidence from acquisitions of assets in the UK

Aris Stouraitis*

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

11 Citations (Scopus)

Abstract

This paper shows that investment banks that advise acquirers of assets negotiate favourable terms when they invest their own money in the deal, but lead their clients to overpay when they do not have financial incentives. Acquirers pay the smallest premiums in divisional MBOs when advised by the investment bank that finances the deal, and the largest premiums in interfirm asset sales when advised by an investment bank remunerated contingent on deal completion. Premiums are in between the two extremes when acquirers do not use advisors. These results are attributed to investment bank incentives, which exacerbate the information asymmetry between buyers and sellers of assets.
Original languageEnglish
Pages (from-to)1917-1934
Number of pages18
JournalJournal of Banking and Finance
Volume27
Issue number10
Early online date24 Dec 2002
DOIs
Publication statusPublished - Oct 2003
Externally publishedYes

User-Defined Keywords

  • Investment banks
  • Sell-offs
  • MBOs
  • Acquisition premium

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