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

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.