Are good financial advisors really good? The performance of investment banks in the M&A market

ORI GINAL RESEARCH

Are good financial advisors really good? Theperformance of investment banks in the M&A market

Ahmad Ismail

Published online: 25 December 2009� Springer Science+Business Media, LLC 2009

Abstract The study examines whether prestigious investment banks deliver quality gains

to their clients in a sample of 6,379 US M&A deals. It finds that acquirers advised by tier-

one advisors lost more than $42 billion, whereas those advised by tier-two advisors gained

$13.5 billion at the merger announcement. The results were mainly driven by the large loss

deals advised by tier-one advisors. The evidence indicates that investment banks might

have different incentives when they advise on large deals vs. small deals. The results imply

that market share based reputation league tables, could be misleading and therefore, the

selection of investment banks should be based on their track record in generating gains to

their clients. The findings were consistent with the superior deal hypothesis as tier-one

target advisors outperformed tier-two advisors and the existence of a prestigious advisor on

at least one side of an M&A transaction resulted in higher wealth gains to the combined

entity. Target advisors were able to extract more wealth gains for their clients, which led to

higher combined gains at the expense of the acquirer.

Keywords Investment banks � Prestigious � Gains � Mergers and acquisitions

JEL Classification G34

1 Introduction

The volume of worldwide announced mergers and acquisitions (M&A) soared to over

$3.8 trillion in 2006. On the other hand, imputed advisory fees on completed transactions

exceeded $32.8 billion, 38.5% of which were earned by ten (prestigious) investment

A. Ismail (&)College of Business and Economics, United Arab Emirates University, P.O Box 17555, Al-Ain, UAEe-mail: [email protected]; [email protected]

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Rev Quant Finan Acc (2010) 35:411–429DOI 10.1007/s11156-009-0155-6

banks1 only, who advised on most of the announced deals.2 These figures show how

hierarchical the investment banking industry is, since few prestigious investment banks

dominate the M&A advisory services. The selection of M&A financial advisors is mainly

driven by their perceived reputation and quality service. In the context of M&A, high

quality products offered by investment banks are those that have greater positive impact on

the clients’ shareholders wealth.3 Therefore, if financial advisors continue providing such

high quality products to their clients, their reputation is enhanced. In turn, the demand for

their products increases resulting in increased market share.

Building on the above, financial advisors’ reputation (their market share) is mainly driven

by how much value they create for their customers. Hence, a key question comes under the

spotlight, that being, how beneficial have top investment banks been to their clients? In other

words, does the selection of ‘quality’ financial advisors result in ‘quality’ value gains to

bidder or target shareholders? To put it bluntly, are good financial advisors really good?

Part of the literature on the role of investment banks in M&A examined the relation

between advisors’ reputation and client shareholders’ gains, and reached contrasting con-

clusions. While recently Ma (2006) investigated only target adviser performance, most

previous studies have focused their analyses on acquirer adviser performance (Servaes and

Zenner 1996; Rau 2000; Da Silva Rosa et al. 2004). In addition, USA acquirer advisor studies

used old and small samples not extending beyond the early 1990s and excluded the acqui-

sitions of non-public targets. Therefore, their results may not be generalized to the total

population of acquisitions. On the other hand, Moeller et al. (2004) documented that because

cumulative abnormal returns (CARs) are equally-weighted, a sample of M&A transactions

generating positive CARs, in fact, could have resulted in large negative dollar gains.

Recently, only Kale et al. (2003) controlled for this issue, however, their study focused on a

very small and outdated sample of acquisitions of listed target firms (324 deals completed

between 1981 and 1994). Moreover, some merger deals during the 1990s merger wave were

peculiar by all standards (excessive premiums, large acquirer losses and large deal values see

e.g. Moeller et al. 2004 and 2005) adding another attraction to investigating the acquirer

financial advisors performance. Therefore conducting a new study using dollar abnormal

returns to investigate the performance of advisors in the M&A process is worth the effort.

I use a sample of 6,379 US M&A deals, for listed and unlisted targets, completed between

1985 and 2004, for which the financial advisor for one party is publicly known.

I control for deal and firm characteristics and find that prestigious acquirer advisors (tier-one)

underperformed tier-two advisors and destroyed more than $42 billion value for acquiring

firms’ shareholders. But it is also found that these huge losses were the result of 178 large loss

deals, and that if these deals were removed from the sample, tier-one advisors could have

outperformed tier-two advisors. A similar conclusion is reached if the bear market period was

excluded from the sample. A key finding of this study is that investment banks might have

different incentives when they advise on large deals vs. small deals as larger merger pre-

miums are found to have been paid in large deals as compared to small ones.4 In contrast, the

results for target advisors were consistent with the superior deal hypothesis as tier-one

investment banks outperformed tier-two advisors. I also find that even in the presence of a

1 Investment banks and financial advisors are used interchangeably in the paper.2 Source: Thomson Financial SDC database, M&A and Advisors Summary Report, Fourth Quarter 2006.3 This is based on the assumption that managers seek shareholders value maximization as their main goal.4 Other explanations for the lower premiums paid in small deals could be related to the possibility thatsmaller firms are more likely in distress, or their managers might accept lower premiums as part of anagreement with the acquirer management to keep their jobs etc…

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tier-one acquirer advisor, target advisors were able to extract more gains for their clients,

which led to higher combined gains at the expense of the acquirer.

The multivariate regressions show that acquirers’ gains are not associated with the

acquirer advisor tier, but they are smaller when the target advisor is tier-one. Conversely,

target gains are positively related to the target advisor’s reputation and to the relative

reputation of the target to the acquirer’s advisor. Combined gains were found to be pos-

itively associated with the high reputation of either party’s advisor and apparently driven

by the target firms’ gains.

The implications of these results are that advisors’ reputation league tables, based on

market share, could be misleading and hence do not necessarily suggest that top-tier banks

will generate high gains to their clients; rather the selection of investment banks should be

based on the performance of those banks in prior acquisitions.

The paper is organized as follows: the relevant literature is reviewed in section two, and

section three presents the methodology and data set. The empirical findings are presented

in section four and the conclusion is drawn in section five.

2 Literature review

Some of the research on the role of investment banks in M&A has examined the effect of

the banks’ reputation on their clients’ returns and found mixed results. The findings

responded to two main conflicting hypotheses, these being namely: the superior deal or the

better merger hypothesis and the deal completion hypothesis. The superior deal hypothesis

argues that more prestigious investment banks, due to their superior expertise in the M&A

market, have the ability to identify better merger partners for their clients and determine

ways to create greater operational and financial synergies. If investment banks’ advice

results in greater wealth to their clients, then their reputation is enhanced. Therefore, this

hypothesis predicts a positive relationship between the reputation of investment banks and

their client’s wealth gain. The deal completion hypothesis, on the other hand, predicts no

such association between reputation and customers’ gain. Because their fees are partially

contingent on the completion of the deal, financial advisors have strong deal completion

incentives. In such case, the financial advisors market share (reputation) will depend on the

number of deals they complete (Rau 2000). However, McLaughlin (1990) argued that even

if investment banks were motivated by fee income, they might not want to increase the

acquisition prices, because this type of behaviour would reduce the value of their repu-

tation capital. On the other hand, Bowers and Miller (1990) found that the combined

wealth gain accruing to both acquirers and targets was larger when either the bidder or the

target employed a first-tier financial advisor. Nevertheless, the authors found that acquirer

shareholders do not generate higher gains if they use a first-tier advisor. On the other hand,

Michel et al. (1991) found that some of the Bulge-bracket advisors outperformed less

prestigious ones but, in general, the degree of prestige of an advisor does not vary directly

with the abnormal returns earned by acquired and acquiring firms. Recently, Rau (2000)

found that, in tender offers, but not in mergers, acquirers advised by first-tier investment

banks earned higher abnormal returns than those advised by second and third-tier banks.

On the other hand, McLaughlin (1992) reported a lower abnormal return for acquirers

with more prestigious investment banks, whereas Servaes and Zenner (1996) did not find

any relation between the acquirer’s abnormal return and the tier of its investment bank.

Rau (2000), for merger deals, and Rau and Rodgers (2002) document a lower

announcement return for deals involving top tier advisors. Similar findings were reported

Are good financial advisors really good? 413

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by Da Silva Rosa et al. (2004) for the Australian market. On the other hand, Kale et al.

(2003) found that the total dollar wealth gain as well as the share of the total wealth

accruing to the bidder (target) increases (decreases) as the reputation of the bidder’s

advisor increases relative to that of the target. They also found that the total dollar wealth

gain is positively related to the reputation levels of both acquirer and target advisors.

McLaughlin (1992) found that the quality of the target investment banks had no sig-

nificant effect on the premium received by target firms; however, the author also reported

that bidders using the services of low-quality investment banks offered substantially lower

premiums. Rau (2000) found no evidence that acquisition premiums and deal completion

rates differed across the tier of the acquirer’s advisor in merger deals. Nevertheless, in

tender offers, Rau (2000) confirmed the findings of McLaughlin (1992) and showed that

using a third-tier investment bank resulted in paying a significantly lower premium and in a

lower deal completion rate than using the services of second or first-tier advisors. The latter

findings are consistent with the deal completion hypothesis, which stems from the agency

conflict between acquirers and their investment banks who may be purely motivated by fee

income.

3 Sample and research methodology

3.1 Sample selection

The sample was collected searching the Thomson Financial SDC Database for all the

M&A deals completed by US public acquirers between Jan 1, 1985 and April 22, 2004.5

Financial institutions were excluded from the sample and only deals with at least

$1 million of disclosed value were selected. The sample included deals that resulted in a

transfer of control where the acquirer’s ownership in the target firm increased above 50%

as a result of the acquisition. The target firm is either a public, private or a subsidiary firm.

Other filtering criteria necessitated that acquirers and public targets had share price data

available on the Center for Research in Security Prices (CRSP) database and on Data-

Stream (for non-US target firms) and that the financial advisors for either party are publicly

disclosed. The final sample consists of 6,379 completed deals.

3.2 Research methodology

Bowers and Miller (1990) and Carter and Manaster (1990) inferred the reputation from the

advisors’ position in tombstone advertisement. Other researchers classified advisors into

various tiers (usually two or three) based on their market share in the takeover market

during the sample period (e.g. Rau 2000; Saunders and Srinivasan 2001; and Kale et al.

2003).6 This research adopts the second approach and uses the investment bank’s market

share as a proxy for its reputation. Similar to Kale et al. (2003) the bidder and target

financial advisors in each transaction are given credit for the full value of the deal. Con-

sequently, tier-one investment banks are defined as the top ten advisors with the largest

market share; all other advisors that are ranked higher than tenth are classified as tier-two.

5 April 22 represented the last date on which the data was available when I collected the sample.6 Carter, Dark, and Singh (1998) show that continuous market share, three-tier market share rankings, andtombstone rankings are highly correlated for the IPO market.

414 A. Ismail

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Moeller et al. (2004) argued that cumulative abnormal returns are equally-weighted and

give the same weight to small and large acquirers making loss-making deals (calculated in

dollar value) look, on average, profitable when actually they are not. Therefore, a sample of

M&A transactions generating an average CAR of 1% might, in fact, have resulted in large

negative dollar gains. Hence, similar to a recent study on the role of financial advisors in

the M&A market (Kale et al. 2003) this paper uses abnormal dollar gains as a performance

measure which is calculated as the market capitalization 2 months prior to the

announcement of the merger multiplied by the cumulative abnormal return in the (-2, ?2)

window.7 The abnormal dollar gain to the target is calculated in a similar manner; how-

ever, the pre-merger toehold presence of the acquirer in the target firm is adjusted for. The

abnormal return is estimated using a standard event study methodology as in Brown and

Warner (1985). The market model is employed and the model’s parameters are estimated

over (-210, -20) interval using the CRSP value-weighted index returns as the benchmark

for US firms and the DataStream index for non-US firms.

3.3 Descriptive statistics

Table 1 contains the summary statistics for the sample. Tier-one advisors that are identified

are very much similar to those recognized by other studies (e.g. Rau 2000; Hunter and

Jagtiani 2003). The table shows that the most prestigious advisor in the sample (Goldman

Sachs) advised acquirers and targets on deals worth nearly $210 and $395 billion

respectively. Tier-one advisors participated in deals which are much larger than those

advised by tier-two. In addition, tier-one advisors seem to dominate the takeover market

with a market share of nearly 60% of the volume total as acquirer advisors and approxi-

mately 65% when representing targets. Tier-one advisors also participate in deals with very

large acquirers.

4 Results

4.1 Performance of acquirer advisors

Table 2 presents the performance of acquirer advisors. I find no consistency between

acquirer advisors’ ranking and the gains generated by their clients. For instance, acquirers

advised by Salomon Smith Barney, ranked fifth within the tier-one advisors, generated the

highest mean dollar gains per deal ($157 million), while the gains generated by those

advised by Morgan Stanley, the second top advisor, were among the lowest. Moreover,

acquirers advised by tier-one investment banks earned mean dollar gains of nearly

-$28 million per deal whereas, acquirers advised by tier-two advisors gained about

$6 million per deal. Aggregating abnormal dollar gains across acquirers, it is found that

firms advised by tier-one advisors lost approximately $42 billion, while those advised by

tier-two advisors enjoyed a total dollar gain of $13.5 billion.

7 Fuller et al. (2002) justifies the use of the 5-day window by the fact that after checking the accuracy of theSDC announcement date they find that for about 92.6% of a random sample of 500 acquisitions the date wasaccurate. However, for the remaining deals it was off by two days at most. I use the 5-day CAR for myanalysis similar to Fuller et al. (2002); however, I also run the tests using other windows and found that myresults are robust. Results and tables are available upon request.


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The worst performers among tier-one banks were Lehman Brothers, Lazard, and

Morgan Stanley since their clients’ losses averaged $178.94 million, $169.55 million and

$158 million per deal, respectively. Those values reflect a total dollar loss of more than

$82 billion. On the other hand, In-House deals resulted in the largest loss per deal of

$826 million, which translates into a total abnormal dollar loss of nearly $115.7 billion.8

At first sight, employing quality investment banks seems to have not resulted in quality

value gains for acquirer shareholders which is consistent with prior research (e.g. Servaes

and Zenner 1996; Rau and Rodgers 2002; and Da Silva Rosa et al. 2004). These gains are

8 I closely investigated the losses of In-House deals and found that they are mainly driven by dealscompleted by very large acquirers, those were Lucent Technologies, Cisco Systems, Intel Corp. and AOL.The abnormal dollar losses of those four acquirers reached nearly $145 billion during the sample period.

Table 1 Descriptive statistics by the type of financial advisors

Financialadvisors

No. ofacquirers

Meandealvalue

Totaldealvalue

Meanacquirersize

No. oftargets

Meandealvalue

Totaldealvalue

Meanacquirersize

Goldman Sachs& Co

251 834 209,434 13,676 376 1,028 386,481 10,961

Morgan Stanley 258 668 172,359 10,619 287 729 209,101 14,790

Merrill Lynch &Co Inc

212 641 135,865 6,870 204 729 148,626 8,123

Credit SuisseFirst Boston

161 796 128,190 5,490 201 656 131,909 13,245

Salomon SmithBarney

84 1,503 126,294 14,089 82 1,047 85,844 15,408

LehmanBrothers

141 456 64,284 7,262 157 375 58,948 11,657

JP Morgan 85 1,788 152,010 16,581 118 570 67,220 13,326

Lazard 86 820 70,486 14,697 101 452 45,696 14,595

DonaldsonLufkin &Jenrette

154 468 72,021 1,518 161 355 57,097 3,367

Bear Stearns &Co Inc

102 222 22,646 4,809 113 401 45,369 8,331

Top 10 advisors(tier 1)

1,534 752 1,153,588 9,203 1,800 687 1,236,291 11,283

Other advisors(tier 2)

2,259 192 433,795 2,333 3,178 167 531,532 5,735

Undisclosed 2,446 112 275,085 7,279 1,359 100 135,516 2,220

In-house deals 140 328 45,955 31,635 42 121 5,084 1,630

The table presents summary statistics for the study sample. Deals are completed between Jan 1985 and April2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least $1 millionand the acquirer gains control of a public, private or a subsidiary target firm. The table names the top ten(tier-one) advisors which were identified by the volume of deals advised during the sample period. Addi-tionally, the distribution is made across four categories. Tier-one advisors, tier-two advisors which are theinvestment banks that did not occupy the first ten positions in terms of market share, In-House deals whichare those with no investment bank retained and undisclosed advisors deals these are the deals for which theadvisor is not reported in SDC database. Deal Value is the value paid for the target firm as reported in SDC;by size I mean market value of equity 2 months prior to the acquisition announcement. Dollar amounts arein millions

416 A. Ismail

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inconsistent with the high ranking of those banks; instead, they support the deal completion

hypothesis, which stems from the agency conflict between acquirers and their investment

banks who may be purely motivated by fee income (Rau 2000).

In order to investigate the performance of acquirer advisors further, I rank investment

banks in the sample based on the mean dollar gains generated by acquiring firms. Similar

to Michel et al. (1991), the analysis is restricted to the advisors who participated in at least

15 M&A transactions during the sample period.9 It is found that only two tier-one banks

rank among the top ten (Salomon Smith Barney, and Merrill Lynch & Co. Inc. ranked

fourth and sixth respectively).

4.2 Does the performance around the internet bubble explain the results?

The speculative internet bubble is believed to have occupied roughly the period of 1995 to

2000, for instance, according to Goldfarb et al. (2006) the NASDAQ index peaked at 5,132

on March 10, 2000 before it crashed on Monday March 13, 2000. Right after the burst of

the bubble, the market rallied downward until around the end of September 2002. These

upward and downward surges in stock markets are worth being taken into account so that

to examine their effects on the results in Table 2. Hence I identify the Internet Bubble

period (Jan 1995 to March 10, 2000) and the bear market period (March 13, 2000 to end of

September 2002). The results in Appendix A show that during the bubble period (Panel A)

tier-one and tier-two acquirer advisors generated large total gains ($61.57 billion and

$25.37 billion, respectively) to their clients and that tier-one advisors outperformed

Table 2 Comparative performance of acquirers financial advisors

Financial advisor No. of acquirers Total dollar gain Mean dollar gain

Goldman Sachs & Co 251 9,190.52 36.62

Morgan Stanley 258 -41,048.26 -159.10

Merrill Lynch & Co Inc 212 23,306.25 109.94

Credit Suisse First Boston 161 -2,288.60 -14.21

Salomon Smith Barney 84 13,200.59 157.15

Lehman Brothers 141 -26,552.11 -188.31

JP Morgan 85 4,318.90 50.81

Lazard 86 -15,463.82 -179.81

Donaldson Lufkin & Jenrette 154 -4,488.72 -29.15

Bear Stearns & Co Inc 102 -2,647.70 -25.96

Top 10 advisors (tier-one) 1,534 -42,472.96 -27.69

Other advisors (tier-two) 2,259 13,546.39 6.00

Undisclosed 2,446 -5,025.85 -2.05

In-house deals 140 -115,681.31 -826.30

The table presents the performance of acquirer financial advisors for deals that were completed between Jan1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is atleast $1 million and the acquirer gains control of a public, private or a subsidiary target firm. The total dollargain is calculated as the market capitalization 2 months prior to the announcement of the merger multipliedby the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimated using the marketmodel. The mean dollar gain is the total dollar gain divided by the number of deals advised by each advisor.Dollar amounts are in millions

9 The ranking tables are available upon request.


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tier-two advisors in that period. Conversely, the performance outside the bubble period

(Panel B) shows huge acquirer losses irrespective of the advisor tier however, larger losses

are generated by tier-one advisors compared to tier-two advisors (-$104 billion vs.

-$11 billion). Such results imply that the findings in Table 2 are mainly driven by the

performance outside the bubble period.

In Panel C, the results for the bear market period (March 13, 2000 until Sept. 30, 2002)

lead to very interesting conclusions, these are, the findings in Panel B are mostly explained

by the performance after the bubble burst. For instance, for tier-one (tier-two) advisors,

nearly 77% (55%) of the losses recorded in Panel B appear to have been incurred during

the bear market period. On the other hand, if I compare the results in Panel C with the

earlier findings in Table 2, I conclude that if the bear market period is excluded from the

sample (Panel D), most of the losses will be converted into gains and most importantly,

earlier results that tier-one acquirer advisors lag behind tier-two advisors will be inverted.

4.3 Does size matter?

Tier-two banks attract the smaller bidders who earn higher abnormal returns than large

acquirers (Moeller et al. 2004). In addition, tier-one advisors attract large acquirers, which

are the source of large dollar losses (Moeller et al. 2005). Therefore, it is worthwhile

investigating the size effect on the results in Table 2. I define small and large acquirers as

the first and the fourth quartile of the sample, respectively. Table 3 (panel A) shows that in

terms of total dollar gains, acquirers advised by tier-two investment banks outperform

those advised by tier-one advisors regardless of their size, large or small ($17,062 million

vs. -$45,528 million and $2,466 million vs. $307.45 million respectively). Additionally,

the same pattern is observed for the mean dollar gains ($55.58 million vs. -$75.25 million

and $3.04 million vs. $1.73 million, respectively). Therefore, it does not seem that the

earlier results reported in Table 2 were driven by size.

4.4 Do the advisors’ incentives differ when they take on large deals vs. small deals?

Rau (2000) argued that financial advisors have strong deal completion incentives as their

fees are partially contingent on the completion of the deal. But, McLaughlin (1990)

contended that even if investment banks are motivated by fee income, they may not want to

increase the acquisition prices, because this type of behaviour would reduce the value of

their reputation capital. I reason that perhaps the trade-off between hurting the reputation in

the future, and receiving a one-time higher fee today, differs between large and small deals.

In other words, for a large enough deal, the investment banks might want to maximize the

fee they receive even if that means that their reputation will suffer in the future. On the

flipside, smaller deals might not present a high enough incentive for the advisors to take

advantage of their clients so in those cases they may have a higher incentive to keep the

premium lower in order to build their reputation.

I inspect the performance of investment banks when they advise on large deals as

opposed to small deals. Small and large deals are defined as the first and the fourth quartile

of the sample respectively. Table 3 (panel B) indicates that large deals result in smaller

dollar gains to the acquirers, irrespective of the investment bank tier.

The comparison across the investment banks tier reveals, once again, that tier-one

advisors lag behind tier-two investment banks in both large and small deals sub-samples,

owing to larger gains generated by their clients (-$17 billion vs. -$55.5 billion and

$9.5 billion vs. $1.85 billion respectively). Furthermore, I investigate whether value

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creation in small deals vs. value destruction in large deals are driven by the merger

premium. In this respect, the premium paid for public firms is computed as the deal value,

as reported by SDC, divided by the market value of equity for the target firm 2 months

prior to the deal announcement date. It is found that the mean premium paid in large deals

(99.35%) is significantly larger than that paid in small deals (63.61%), (P-value being

0.0018). Additionally, because the premium results in troubling outliers, Moeller et al.

(2004) and Officer (2003) truncate it so that it takes values between zero and two. This

procedure was followed and it emerged that the mean truncated premium paid in large

deals (74.38%) is also significantly larger than that paid in small deals (61.44%), (P-value

being 0.0031). The analysis was replicated to learn whether the results hold for each

advisor tier. The earlier findings were confirmed for tier-two advisors as the corresponding

merger premiums were 97.62 and 53.3% for large and small deals respectively, the

Table 3 Comparative performance of acquirers financial advisors by acquirer size and deal size

Financial advisor No. Total dollar gain Mean dollar gain

Panel A: acquirer gain sorted by acquirer size large and small

Large acquirers

Top 10 advisors (tier-one) 605 -45,528.41 -75.25

Other advisors (tier-two) 307 17,061.59 55.58

Undisclosed 621 -12,614.13 -20.31

In-house deals 63 -115,791.66 -1,837.96

Small acquirers

Top 10 advisors (tier-one) 178 307.45 1.73


Undisclosed 585 893.51 1.53

In-house deals 21 99.91 4.76

Panel B: acquirer gain sorted by deal size large and small

Large deals


Other advisors (tier-two) 472 -17,002.93 -36.02

Undisclosed 293 -54,328.76 -185.42

In-house deals 45 -56,332.20 -1,251.83

Small deals

Top 10 advisors (tier-one) 83 1,847.96 22.26


Undisclosed 847 52,151.24 61.57

In-house deals 30 6,253.17 208.44

The table presents the performance of acquirer financial advisors for deals that were completed between Jan1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is atleast $1 million and the acquirer gains control of a public, private or a subsidiary target firm. In Panel A thedistribution is made by acquirer size small vs. large where small and large represent the smallest and thelargest 25% of the transactions in the sample respectively measured by acquirer market value 2 months priorto the announcement of the merger. In Panel B the distribution is made by deal size small vs. large wheresmall and large represent the smallest and the largest 25% of the deals in the sample respectively measuredby consideration paid. The total dollar gain is calculated as the market capitalization 2 months prior to theannouncement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulativeabnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided bythe number of deals advised by each advisor. Dollar amounts are in millions


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difference being significant at the 1% level. But for tier-one advisors it was found that the

difference between the mean premium paid in large and small deals was not significant at

the conventional levels as the P-value was 0.1071.10

4.5 Are the results affected by large loss deals?

Moeller et al. (2005) found that the losses of acquiring firm shareholders from 1998 to

2001, wiped out all the gains made between 1990 and 1997. The authors showed that these

losses are caused by a few large loss deals. Therefore, the possibility that the results from

this study are driven by large loss deals is examined, adopting the criteria for ‘large loss

deals’ used by Moeller et al. (2005), those being transactions that result in a dollar loss of

at least $1 billion for acquiring firm shareholders. One hundred and seventy-eight (178)

such deals were identified. Those resulted in an accumulated loss of nearly $870 billion for

the acquiring firm shareholders.11 On the other hand, out of the 178 large loss deals, the

share of tier-one advisors was 80 deals ensuing in a total loss of about $250 billion, while

tier-two advisors’ share was 22 deals that accumulated a total loss of $49 billion.12 Table 4

shows that when these deals were excluded, acquirers advised by tier-one advisors gen-

erated a much larger dollar gain than their counterparts who were advised by tier-two

investment banks ($207 billion vs. $62.8 billion).

4.6 Determinants of acquirer abnormal wealth gains

It is worthwhile accounting for other factors such as deal and firm characteristics and

examining whether the findings of the earlier univariate analysis still hold in a multivariate

setting. Kale et al. (2003) used the total abnormal dollar gain as their dependent variable,

but in order to control for the influence of outliers, they used a trimmed sample by deleting

extreme values from both sides.13 This procedure was adopted and therefore, the sample

was trimmed by deleting 5% of the largest and smallest wealth gains. Three regression

models were run using the following independent variables:

In order to examine the effect of the advisors’ reputation on the acquirer wealth gains

three dummy variables are used set equal to one if the acquirer advisor is tier-one, the

target advisor is tier-one, and the target advisor is tier-one while the acquirer advisor is tier-

two (superior reputation of target advisor), zero otherwise. Other variables include dum-

mies set equal to one if the target is public, or a subsidiary firm; the method of payment is

cash, or equity; the target and acquirer share the same two-digit SIC codes (related

industries); the target is a foreign company, the deal attitude is hostile as defined in the

SDC database, and whether the acquirer had a toehold, 5% ownership, in the target firm

prior to the acquisition announcement. Additional variables include the relative size of the

10 For tier-one advisors’ clients, the mean premium paid in large deals was 100.8% while that paid in smalldeals was 42.42%. The difference was not significant as there were only 11 small deals advised by tier-onebanks.11 Similar to Moeller et al. (2005), over the 20-year period of the study, most of the losses (87%) werefound to have taken place between 1998 and 2001. The aggregate losses accumulating from large loss dealsbetween 1998 and 2001 reached nearly $757 billion created from 127 deals.12 The remaining losses were created in In-House deals and Undisclosed advisor deals ($173 billion and$398 billion respectively).13 Kale et al. (2003) followed another procedure that is: they ranked bidder’ wealth gains in ascending orderand used each deal’s rank as their dependent variable. I used the same method and found that the resultswere robust.

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target to acquirer and the acquirer size (Ln (equity)). Year and one-digit SIC code dummies

are included in all models but are not reported.

The results are presented in Table 5 where the coefficients for the acquirer reputation

dummy in models (1) and (2) are not significantly different from zero, which indicates that

employing highly reputed advisors does not result in larger abnormal dollar gains to the

acquiring firm shareholders. There is no need to adjust for large loss deals, since a trimmed

sample is used which already excludes large loss deals. The negative coefficient for the

target advisor reputation dummy in model (2) indicates that the higher the reputation of the

target advisor, the lower the acquirer dollar gains. This result implies that the target advisor

might have negotiated a higher premium for his client which resulted in a lower return for

the acquirer. The latter finding is supported by the negative coefficient (although not

significant) on the superior reputation dummy of the target advisor in model (3) which,

consistent with Kale et al. (2003), signifies that when the target advisor is more reputable

than that of the acquirer, lower gains are accumulated for the acquirer firms. The coeffi-

cient on cash deal is positive and significant in all models, suggesting that such transactions

generate higher gains than equity and mixed financing acquisitions. The coefficient on

equity deals is negative but significant only in model (1) implying that equity offers are less

value-adding than cash offers. The significant negative coefficients on the public deals

dummy support the previous evidence that the acquisitions of public firms result in lower

returns than the takeover of subsidiary and private firms (e.g. Moeller et al. (2004), Fuller

et al. (2002). Moreover, the coefficient of the size variable (Ln (Acq. equity) is signifi-

cantly negative in model (2), being consistent with earlier findings of a size effect (Moeller

et al. 2004).

Table 4 Comparative performance of acquirers financial advisors excluding large loss deals


Goldman Sachs & Co 236 66,396.90 281.34

Morgan Stanley 241 23,460.22 97.35


Credit Suisse First Boston 147 20,871.63 141.98

Salomon Smith Barney 79 32,586.89 412.49

Lehman brothers 132 11,031.18 83.57

JP Morgan 78 19,582.42 251.06

Lazard 84 -1,445.94 -17.21

Donaldson Lufkin & Jenrette 151 -1,037.01 -6.87

Bear Stearns & Co Inc 98 3,394.64 34.64

Top 10 advisors (tier-one) 1,454 207,397.1 142.639


Undisclosed 2,383 393,232.2 165.0156

In-house deals 127 57,703.41 454.3576

The table presents the performance of acquirer financial advisors for deals that were completed between Jan1985 and April 2004 as reported by SDC excluding all financial institutions deals and excluding deals thatresult in acquirer dollar loss of at least $1 billion; where the deal value is at least $1 million and the acquirergains control of a public, private or a subsidiary target firm

The total dollar gain is calculated as the market capitalization 2 months prior to the announcement of themerger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulative abnormal returns estimatedusing the market model. The mean dollar gain is the total dollar gain divided by the number of deals advisedby each advisor. Dollar amounts are in millions


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4.7 Performance of target advisors

In this section I examine whether the conclusions about acquirer advisors’ performance are

maintained when these banks advise target firms. Table 6 shows that targets advised by

tier-one investment banks generate, on average, $119.94 million per deal compared to the

$28.65 million earned by tier-two advisors’ clients. These figures translate into total dollar

gains of $63.3 billion and $27.1 billion for targets advised by tier-one and tier-two

investment banks, respectively. Additionally, it is found that Goldman Sachs & Co. leads

tier-one advisors with nearly $22 billion total dollar gains generated for its target clients. In

sum, these results, contrary to those of the acquirers’ advisors, are supportive of the

superior deal hypothesis.

Similar to the procedure that I use for acquirer advisors, I also rank target advisors. The

rankings of target advisors show that JP Morgan, a tier-one advisor, ranks first with a mean

Table 5 Determinants of acquirer wealth gains

(1) (2) (3)

Intercept 9.221 45.904** 46.886**

Acquirer advisor tier-one 3.850 9.415

Target advisor tier-one -15.306**

Target advisor tier-one and acquireradvisor tier-two

-9.556

Shares -10.796** -6.063 -5.890

Cash 11.399*** 24.759*** 24.763***

Public -20.059*** -28.033*** -26.007***

Private 0.607 -5.463 -3.806

Industry relatedness -0.853 7.144 7.126

National -5.519 -7.288 -8.459

Hostile -13.266 -9.549 -10.515

Relative size 0.328 -2.699 -3.354

Toehold 5.622 16.215 16.064

Ln (acquirer equity) 0.046 -6.114*** -6.328

Adj R-Sq 0.0148 0.0203 0.0184

F-value 5.68*** 4.75*** 4.71***

Number of observations 3,431 2,173 2,173

The table presents ordinary least square regressions of the total dollar gains for the acquirer shareholders fordeals completed by US acquirers between Jan 1985 and April 2004 as reported by SDC excluding allfinancial institutions deals where the deal value is at least $1 million and the acquirer gains control of thetarget firm. The sample was trimmed by deleting 5% of the largest and smallest wealth gains. The inde-pendent variables include dummies for acquirer advisor tier, the target advisor tier, the target advisor tierrelative to acquirer advisor tier, cash, shares, public, private, industry relatedness, national, hostile, andtoehold that take the value one if acquirer advisor is tier-one, the target advisor is tier-one, the target advisoris tier-one while the acquirer advisor is tier-two, for acquisitions using pure cash, pure equity, acquisitions ofpublic targets, private targets, acquisitions of firms that share the bidder the same two-digit SIC code,acquisitions of US targets, hostile acquisitions as defined in SDC, and deals where the acquirer had at least5% ownership in the target firm prior to the acquisition, respectively. Relative size is the target market valueof equity divided by the acquirer market value of equity 2 months prior to the acquisition announcement,and Ln (Equity) is the natural logarithm of the acquirer market value of equity 2 months prior to the dealannouncement. I also include year and one-digit SIC code dummies in all models but do not report them

***, **, * Significant at the 1%, 5% and 10% respectively

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123

dollar gain of $218.79 million. Additionally, contrary to the ranking of the acquirers’

advisors, the comparisons based on the mean dollar gains and even the total dollar gains

were very much consistent with the advisors’ reputation. It is found that eight tier-one

banks rank among the top ten target advisors by the mean dollar gains earned by their

clients.14

4.8 Determinants of target abnormal wealth gains

Table 7 presents the findings on the effect of advisor reputation on target abnormal wealth

gains after controlling for various deal and firm characteristics as in Table 5. The findings

lend support to the univariate results in Table 6 as the coefficient on the target advisor

reputation dummy is positive and significant in models (1) (2) and (3).15 Moreover, similar to

Kale et al. (2003), it is found that when the target advisor is more reputable than the acquirer,

target gains are bound to be higher, as in model (4) the coefficient of the superior reputation

dummy is significant at the 5% level. The equity payment dummy which is negative and

significant in model (4) only, indicates that equity exchange offers result in lower dollar gains

than cash and mixed settlement deals, which is consistent with the standard M&A literature

(see for example Huang and Walkling 1987; Franks et al. 1991). However, the cash payment

dummy is significantly negative in models (2), (3) and (4) implying that cash settlement deals

Table 6 Comparative performance of target financial advisors

Financial advisor No. of targets Total dollar gain Mean dollar gain

Goldman Sachs & Co 134 21,869.15 163.20

Morgan Stanley 87 10,951.60 125.88


Credit Suisse First Boston 60 8,160.49 136.01

Salomon Smith Barney 27 -1,315.00 -48.70

Lehman Brothers 41 3,199.78 78.04

JP Morgan 24 5,250.92 218.79

Lazard 19 3,340.60 175.82

Donaldson Lufkin & Jenrette 52 2,787.08 53.60

Bear Stearns & Co Inc 29 3,301.76 113.85



Undisclosed 64 460.24 7.19

In-house deals 10 151.85 15.19

The table presents the performance of target financial advisors for deals that were completed between Jan1985 and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is atleast $1 million and the acquirer gains control of a public target firm


14 The ranking tables are available upon request.15 The number of observations in Model 2 is smaller than in Model 1 because the sample in Model 1 is atrimmed sample where 5% from both sides of the distribution of acquirer abnormal dollar gains areexcluded; whereas in Model 2 only large loss deals are excluded.


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result in lower gains than mixed offers.16 The hostile dummy is also positive and significant

as such deals are accompanied with higher merger premiums. The negative and significant

coefficient of the toehold dummy in models (1) and (3) indicates that toehold presence

reinforces the bidder’s position during the deal negotiation process, or it could lessen

information asymmetry about the true performance and value of the target firm. In the same

vein, Ismail (2008) found that deals with acquirer toehold result in paying lower premiums.

The significant positive coefficient of the industry relatedness dummy implies that industry

Table 7 Determinants of target wealth gains

(1) (2) Excluding largeloss deals

(3) (4)

Intercept -58.422*** -153.865*** -83.862*** -102.515***

Acquirer advisor tier-one 5.538

Target advisor tier-one 29.728*** 54.705*** 33.809***

Target advisor tier-one and acquireradvisor tier-two

12.675**

Shares 1.404 -13.454 -6.137 -7.697*

Cash -4.399 -29.994** -8.254*** -8.559*

Industry relatedness 6.249** 11.217 12.015*** 14.694***

National 3.427 8.303 8.272 16.853**

Hostile 18.725*** 95.483*** 26.424** 33.240***

Relative size 7.337*** 18.594*** 7.549*** 9.624***

Toehold -14.131** -27.825 -15.811* -14.498

Ln (acquirer equity) 10.664*** 25.844*** 14.271*** 17.475***

Adj R-Sq 0.2845 0.1253 0.311 0.2525

F-value 59.36*** 23.28*** 43.71*** 36.58***

Number of observations 1,321 1,400 948 948

The table presents ordinary least square regressions of the total dollar gains for the target firm shareholdersfor deals completed by US acquirers between Jan 1985 and April 2004 as reported by SDC excluding allfinancial institutions deals where the deal value is at least $1 million and the acquirer gains control of thetarget firm. The sample was trimmed by deleting 5% of the largest and smallest wealth gains. The inde-pendent variables include dummies for acquirer advisor tier, the target advisor tier, the target advisor tierrelative to acquirer advisor tier, cash, shares, industry relatedness, national, hostile, and toehold that take thevalue one if acquirer advisor is tier-one, the target advisor is tier-one, the target advisor is tier-one whilethe acquirer advisor is tier-two, for acquisitions using pure cash, pure equity, acquisitions of firms that sharethe bidder the same two-digit SIC code, acquisitions of US targets, hostile acquisitions as defined in SDC,and deals where the acquirer had at least 5% ownership in the target firm prior to the acquisition, respec-tively. Relative size is the target market value of equity divided by the acquirer market value of equity2 months prior to the acquisition announcement, and Ln (Equity) is the natural logarithm of the acquirermarket value of equity 2 months prior to the deal announcement. Model (2) controls for large loss deals;these are defined as those that result in acquirer dollar loss of at least $1 billion. I also include year and one-digit SIC code dummies in all models but do not report them


16 The negative coefficient on the cash payment dummy may look contradictory to the standard M&Aliterature. However, it is worthwhile noting that such literature uses the CAR as a dependent variable, whilethis study uses the dollar gains which are a function of both the CAR and the deal size. Moreover, aunivariate analysis of target mean dollar gains controlling for the method of payment shows that those gainsare larger for mixed offers, than for equity offer which are also larger than for cash deals ($102.07 million,$68.94 million and 65.81 million, respectively).

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focus deals are more favourably received by the market than diversified acquisitions. The

acquirer size and relative size coefficients are both significantly positive. On the other hand,

the acquirer advisor reputation does not seem to have a significant effect on the target wealth

gain as the coefficient is insignificant in model (3).

4.9 Can inference be drawn from the differential reputation of acquirer

and target advisors?

In this section the analysis is restricted to deals that are either advised by tier-one or tier-

two advisors, that is, In-House and Undisclosed deals are excluded. The performance of

investment banks is analyzed across the tier of the target and the acquirer advisors

simultaneously, using, in addition to target and acquirer gains, the combined dollar gains

for both parties.

Table 8 shows that even in the presence of a tier-one acquirer advisor, in terms of total

abnormal dollar gains, acquiring firms lose more (-$28.83 billion vs. -$10.22 billion)

while target firms and the combined entity gain more ($44.77 billion vs. 17.34 billion and

$15.9 billion vs. $7.12 billion, respectively) when targets employ a tier-one advisor than

when they utilize a tier-two bank. The mean dollar gains also show the same outcome.

A very similar pattern of dollar gains is observed when the acquirers employ a tier-two

bank, except that the combined entity’s gain is lower (-$6.9 billion) when targets employ

tier-one banks, which is, obviously, driven by the large acquirer losses in this sub-sample.

However, if the comparison is conducted based on the target advisor’s reputation level,

it is found that, irrespective of the target advisor tier, acquirers’ gains are worse (-$28.8

vs. -$19.1 billion) while the targets and the combined entity’s gains are better ($44.77 vs.

$12.24 billion and $15.94 vs. -$6.94 billion respectively) when acquirers employ a

tier-one advisor than if they use a tier-two investment bank.

Table 8 Simultaneous comparative performance of tier-one and tier two acquirer and target advisors

Acquirer advisor tier

Target advisor tier Tier-one Tier-two

N Total dollargains

Mean dollar gain N Total dollargains

Mean dollargain

Tier-one

Acquirer 282 -28,833.77 -102.25 156 -19,173.20 -122.91

Target 282 44,770.84 158.76 156 12,237.38 78.44

Combined 282 15,937.07 56.51 156 -6,935.83 -44.46

Tier-two

Acquirer 275 -10,221.35 -37.17 341 -2,337.77 -6.86

Target 275 17,340.61 63.06 341 5,573.55 16.34

Combined 275 7,119.26 25.89 341 3,235.78 9.49

The table presents the comparative performance of tier-one and tier-two financial advisors for deals thatwere completed between Jan 1985 and April 2004 as reported by SDC excluding all financial institutionsdeals; where the deal value is at least $1 million and the acquirer gains control of a public, private or asubsidiary target firm. The total dollar gain is calculated as the market capitalization 2 months prior to theannouncement of the merger multiplied by the CAR (-2, ?2). CAR (-2, ?2) is the 5-day cumulativeabnormal returns estimated using the market model. The mean dollar gain is the total dollar gain divided bythe number of deals advised by each advisor. For the combined entity here I define the total dollar gains asthe sum of the gains accruing to each party. Dollar amounts are in millions


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These results imply that target advisors are able to extract more gains for their clients,

which lead to a higher combined gain at the expense of the acquirer. This, once again, is

consistent with the superior deal hypothesis for the target advisors and with the deal

completion hypothesis for the acquirer advisors. Additionally, the combined wealth results

support the superior deal hypothesis, as larger gains are attributed to the high reputation of

both parties’ advisors.

4.10 Determinants of combined abnormal wealth gains

The results on the combined wealth gains to the acquirer and target firms are presented in

Table 9. In addition to the variables used earlier in this study, two additional dummies are

included; these are set equal to one if one advisor is tier-one and if both advisors are

Table 9 Cross sectional regression analyses

(1) (2) Excluding largeloss deals

(3) (4) (5)

Intercept 16.244 15.262 31.020 13.261 35.241

Acquirer advisor tier-one 30.481** 30.007**

Target advisor tier-one 28.095** 32.285**

Both advisors tier-one 40.077**

Either advisor tier-one 41.758***

Target advisor tier-one and acq.advisor tier-two

5.309

Shares -30.073* -29.795* -31.866* -30.345* -33.455**

Cash 29.095 27.785 29.263 27.762 27.116

Industry relatedness 12.813 14.349 13.159 13.271 14.151

National -26.078 -26.139 -23.179 -24.066 -17.934

Hostile 68.426* 67.632* 69.266* 74.857* 80.669**

Relative size -1.016 -0.662 -1.720 -0.897 -1.955

Toehold -35.181 -35.571 -35.896 -33.695 -33.836

Adj R-Sq 0.0266 0.0278 0.0228 0.0254 0.0161

F-value 3.88 *** 3.99*** 3.77*** 4.09*** 2.94***

Number of observations 948 942 948 948 948

The table presents ordinary least square regressions of the combined dollar gains for the target and acquirerfirms’ shareholders for deals completed by US acquirers between Jan 1985 and April 2004 as reported bySDC excluding all financial institutions deals where the deal value is at least $1 million and the acquirergains control of the target firm. The sample was trimmed by deleting 5% of the largest and smallest wealthgains. The independent variables include dummies for acquirer advisor tier, target advisor tier, both advisorstier, either advisor tier, target advisor tier relative to acquirer advisor tier, cash, shares, industry relatedness,national, hostile, and toehold that take the value one if acquirer advisor is tier-one, the target advisor is tier-one, both advisors are tier-one, either advisor is tier-one, the target advisor is tier-one while the acquireradvisor is tier-two, for acquisitions using pure cash, pure equity, acquisitions of firms that share the bidderthe same two-digit SIC code, acquisitions of US targets, hostile acquisitions as defined in SDC, and dealswhere the acquirer had at least 5% ownership in the target firm prior to the acquisition, respectively. Relativesize is the target market value of equity divided by the acquirer market value of equity 2 months prior to theacquisition announcement. Model (2) controls for large loss deals; these are defined as those that result inacquirer dollar loss of at least $1 billion. I also include year and one-digit SIC code dummies in all modelsbut do not report them


426 A. Ismail

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tier-one, zero otherwise. In model (1) the coefficients of the advisors’ reputation dummies

are both significant at the 5% level implying that combined wealth gains are larger for

deals with a tier-one acquirer advisor and a tier-one target advisor. The results are con-

firmed in model (2), which excludes large loss deals and in model (3) as the coefficient on

both advisors’ reputation dummies is significantly positive. On the other hand, model (4)

shows that when one of the parties’ advisors is in tier-one, the combined wealth gains

would be significantly higher as well, this is consistent with Bowers and Miller (1990) and

with the univariate analysis of Table 8. Moreover, the remaining coefficients were con-

sistent across all the models. For instance, the significant negative coefficient of the equity

settlement dummy indicates that lower gains are expected for equity deals; this is con-

sistent with prior M&A studies (see e.g. Eckbo and Langohr 1989; Franks et al. 1991; and

Ismail and Davidson 2005). Furthermore, the positive coefficient of the hostile deal

dummy denotes that such deals result in larger wealth gains as well.

5 Conclusion

The study investigated whether employing high quality financial advisors results in larger

gains to targets, bidders and the combined entity. For a sample of 6,379 US M&A deals

completed between 1985 and 2004, the study found that employing prestigious financial

advisors (tier-one) destroyed value of more than $42 billion for acquiring firms’ share-

holders; whereas acquirers advised by tier-two investment banks generated a total dollar

gain of more than $13.5 billion. Six advisors, out of the top ten, wiped out the gains created

by the remaining four investment banks. These results hold irrespective of the acquirer size

and the deal size (large or small). I also found evidence that larger premiums are paid in

large deals as compared to small deals, which indicates that investment banks might have

different incentives when they advise on large deals as opposed to small ones. On the other

hand, it is also found that tier-one banks were involved in most of the large loss deals, and

that if they had not advised on those deals, they could have outperformed tier-two advisors.

Moreover, another key finding was that during the internet bubble period both type of

advisors generated large gains to their acquirer clients but tier-one advisors outperformed

tier-two advisors. I also find that most of the losses incurred by acquiring firms were in

fact, during the bear market period, and if this period were excluded from the sample, tier-

one acquirer advisors could have outperformed tier-two advisors. The ranking of invest-

ment banks showed that less prestigious advisors occupied the highest positions in terms of

the mean dollar gains earned by acquirers, however, tier-one advisors rarely occupied high

rankings.

The industry implications of these results are that advisors’ reputation league tables,

based on market share, could be misleading as they do not necessarily propose that top-tier

banks will generate high gains to their clients; and therefore the selection of investment

banks must be based on the advisors’ track record in generating quality gains to their

clients in prior acquisitions.

On the other hand, the results for target advisors were consistent with the superior deal

hypothesis as tier-one investment banks’ clients generated larger gains. Moreover, the

ranking of target advisors showed that most of the tier-one investment banks were at the

top of the league table.

Additionally, the paper found that the existence of a prestigious advisor on at least one

side of an M&A transaction results in higher wealth gains to the combined entity. There is


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also evidence that target advisors are able to extract more wealth gains for their clients

which lead to higher combined gains at the expense of the acquirer.

After controlling for various deal and firm characteristics, multivariate analyses on

acquirer, target and combined wealth gains were all supportive of the univariate results.

The regressions documented no relation between the acquirer advisor tier and the acquirer

wealth gains. However, the results also showed that acquirers’ gains are smaller when the

target advisor is tier-one. Targets also gain more when their advisor is more reputable than

that of the acquirer.

Appendix A

See Table 10.

Table 10 Comparative performance of acquirers financial advisors accounting for the internet bubble


Panel A: the performance during the bubble period



Undisclosed 967 102,851.27 106.36

In-house deals 132 -66,049.88 -500.38

Panel B: the performance outside the bubble period


Other advisors (tier-two) 1,191 -11,828.20 -9.93

Undisclosed 1,479 -107,877.11 -72.94

In-house deals 8 -49,631.43 -6,203.93

Panel C: the performance during the bear market period between Mar 13, 2000 and Sept. 30, 2002


Other advisors (tier-two) 380 -6,452.81 -16.98

Undisclosed 546 -124,607.01 -228.22

In-house deals 6 -49,643.02 -8,273.84

Panel D: the performance EXCLUDING the bear market period between Mar 13, 2000 and Sept. 30, 2002

Top 10 advisors (tier-one) 1,225 37,172 30.34

Other advisors (tier-two) 1,879 19,999 10.64

Undisclosed 1,900 119,581 62.94

In-house deals 134 -66,038 -492.82

The table presents the performance of acquirer financial advisors after accounting for the internet Bubblewhere the bubble period is between Jan 1995 and March 10, 2000 (Panels A and B). The Table also showsthe results during the bear market period between Mar. 13, 2000 and Sept. 30, 2002 and the results afterexcluding this period from the total sample (Panels C and D). The deals were completed between Jan 1985and April 2004 as reported by SDC excluding all financial institutions deals; where the deal value is at least$1 million and the acquirer gains control of a public, private or a subsidiary target firm


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Are good financial advisors really good? The performance of investment banks in the M&A market

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