SHS Web Conf.
Volume 34, 2017The 17th Annual Conference of the Asian Academic Accounting Association (2016 FourA Conference)
|Number of page(s)||6|
|Section||Corporate Finance and Capital Markets|
|Published online||14 February 2017|
Do Financial Advisors Live Up to Their Reputation: The Case of Major Assets Restructurings of Chinese Listed Companies
1 Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou, China
2 University of Massachusetts Lowell, Lowell, MA, USA
We investigate whether top-tier advisors provide superior services by examining the relationship between reputation (measured by whether it is a top-10 advisor ranked on deal value) of financial advisors on the bidder side and stock market-based/accounting-based performance of bidders. Using Chinese listed companies with major assets reorganizations (MARs, M&As with large-scale target), we find top-tier advisors are associated with higher excess returns (CARs), implying that reputation generates a verification effect on investors. But we find no significant relationship between the advisor reputation and bidders’ accounting-based performance post-MARs. The findings indicate that although advisor reputation can attract M&A business and sends positive signal to the market, it does not lead to stronger financial performance in the long run. That is, the so-called top-tier financial advisors fail to live up to their reputation. We also find that payment premium is an intervening variable between advisor reputation and the long-term accounting-based performance of bidders, suggesting that top-tier advisors fail in their duties to help clients achieve greater share of synergy gains.
© The Authors, published by EDP Sciences, 2017
This is an Open Access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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