Work

In-house deals: Agency and information asymmetry perspectives

Year: 2021

Type: article

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 advisor

Source: Corporate Ownership and Control

DOI: 10.22495/cocv18i2art1

Authors: Fang Chen, Jian Huang, Minghui Ma, Han Yu

Institutions: University of New Haven, Towson University, York College of Pennsylvania, Southern Connecticut State University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: diamond

OpenAlex ID: W3119767974

FWCI: 5.877

Cites: 49

Cited by: 14

Related to: 10