سهم بانک سرمایه گذاری در بازار، پرداخت هزینه های احتمالی، و عملکرد کسب شرکت

This paper investigates the determinants of the market share of investment banks acting as advisors in mergers and tender offers. In both mergers and tender offers, bank market share is positively related to the contingent fee payments charged by the bank and to the percentage of deals completed in the past by the bank. It is unrelated to the performance of the acquirors advised by the bank in the past. In tender offers, the post-acquisition performance of the acquiror is negatively related to the contingent fee payments charged by the bank, suggesting that the contingent fee structure in tender offers ensures that investment banks focus on completing the deal.

In this paper, I investigate the determinants of market share for investment banks advising acquirors in mergers and tender offers. I also examine the relation between the market share of an investment bank and the fee incentive structure it faces. Finally, I examine the consequences of this relation for the performance of the acquirors advised by these investment banks in mergers and tender offers. I investigate two contrasting hypotheses on the determinants of the market share of an investment bank acting as an advisor to acquirors involved in mergers or tender offers. The superior deal hypothesis argues that the performance of the acquiror in the mergers and tender offers advised by the investment bank is an important determinant of the bank's market share. It predicts that acquirors advised by top-tier investment banks (with a high market share) should earn higher announcement-period excess returns on average than acquirors advised by lower-tier investment banks. The deal completion hypothesis, on the other hand, argues that the valuation of the deal is of secondary importance. Because investment banks advising acquirors in mergers and tender offers face strong deal completion incentives in their fee structure, their role is simply to complete the deal, in which case the market share of the investment bank will depend on the number of deals it completes. This hypothesis further predicts that there should be no positive relation between the excess returns earned by the acquiror and the market share of the investment bank advising the deal. Note that this hypothesis does not have any implications about whether investment banks are chosen by acquirors to complete deals for targets already selected by the acquirors or whether the banks self-select to choose targets that have a better chance of being completed. I measure the average market share of each investment bank as a fraction of the total value of transactions advised by investment banks in any single year. This measure yields a stable ranking across the years 1980–1994. Classifying the top five banks every year as `bulge bracket’ or first-tier banks shows that these banks remain in the bulge bracket for a majority of the years the study covers. They are also almost never out of the takeover market in any year. Similarly, the next 15 banks, classified as `major bracket’ or second-tier banks, are hardly ever classified as bulge bracket. The remaining banks, the third-tier banks, also remain classified as third-tier banks (or do not participate in the market) in all but a small fraction of the years 1980–1994. The market share of the bank is significantly related to its fee structure. Bulge bracket banks charge a significantly higher proportion of their fees as contingent fees than do either major bracket or third-tier banks. In mergers, first-tier banks charge, on average, 55% of their total fees as contingent fees, while second- and third-tier banks charge only 36% and 32%, respectively. In tender offers, first-tier banks charge 73% of their fees as contingent fees while second- and third-tier banks charge 61% and 64%, respectively. This is consistent with both the superior deal hypothesis (with top-tier investment banks signaling their quality by charging a higher proportion of their fees as contingent fees) and with the deal completion hypothesis (since the fees are contingent on the acquisition being completed). I investigate the determinants of investment bank market share by directly examining the explanatory power of my two alternative hypotheses. In both mergers and tender offers, the percentage of deals completed by the investment bank in previous years is consistently positively and significantly related to the bank's market share in subsequent years, even after controlling for other variables that proxy for the complexity of the transaction. There is no relation between the post-acquisition performance of the acquirors the bank has advised in the past and the bank's subsequent market share. This suggests that investment banks focus on completing the deal, rather than on preventing poor deals. This conclusion holds when I extend the horizon over which I measure performance from one year to ten years, or when I use annual rather than semiannual cumulative abnormal returns (CARs) as explanatory variables. In almost every case, the percentage of completed deals is significant at the 5% level. In addition, the regressions have reasonable explanatory power, with the adjusted R2 for the regression ranging up to 63% for mergers and up to 16% for tender offers. To test the predictions of the two hypotheses, I examine the proportion of completed acquisitions advised by the three categories of investment banks. Consistent with the deal completion hypothesis, first-tier banks complete a significantly greater proportion (86%) of the tender offers they advise than do either second- or third-tier banks (75% and 74%, respectively). In mergers, when I adjust for the advisor of the target bank, first-tier banks also complete a higher proportion of their deals against target advisors of any category than do third-tier advisors, though the difference is not statistically significant. Second, I examine the excess returns earned by acquirors advised by different categories of investment banks. The superior deal hypothesis predicts that acquirors advised by top-tier investment banks should earn higher excess returns than acquirors advised by lower-tier investment banks. It also predicts that deals with positive excess returns are more likely to be completed by first-tier banks than deals with negative excess returns. The deal completion hypothesis predicts no positive relation. In fact, bidders in mergers advised by first-tier investment banks earn significantly lower announcement abnormal returns than do bidders advised by either second- or third-tier banks. In tender offers, while bidders in tender offers advised by first-tier banks earn significantly higher abnormal returns in the announcement period than bidders in deals advised by either second- or third-tier banks, there is no positive relation between these announcement-period excess returns and deal completion rates. Acquirors advised by first-tier banks in mergers or tender offers complete a similar proportion of deals whether the announcement-period excess return is negative or positive. These results are inconsistent with the superior deal hypothesis. Third, I investigate the acquisition premiums paid in acquisitions involving first-, second-, and third-tier banks. One way to make sure that a deal is completed is for the acquiror to pay higher acquisition premiums. If first-tier banks encourage their clients to make higher bids, this might explain both the higher completion rates and the poor relative performance of bidders advised by first-tier banks in tender offers. Consistent with the deal completion hypothesis, acquirors in tender offers advised by third-tier investment banks pay a median premium of 38% as opposed to 56% and 58% for acquisitions advised by first-tier or second-tier banks, respectively. This is also consistent with evidence reported by McLaughlin (1992), who documents that in tender offers, bidders using low-quality investment bankers offer significantly lower premiums than high-quality investment banks. The acquisition premiums paid in acquisitions advised by the different categories of investment banks in mergers are indistinguishable from one another. Finally, the deal completion hypothesis implies that if the deal completion incentives in the contingent fee payments to the investment bank cause it to focus only on completing acquisitions, then the post-acquisition abnormal return earned by acquirors will not be positively related to the proportion of fees paid to the bank as contingent fees. Also, since investment banks charge a much lower proportion of their fees as contingent fees in mergers than in tender offers, this hypothesis also predicts that the deal completion incentives faced by investment banks are stronger in tender offers than in mergers. Consistent with this hypothesis, there is no positive relation in mergers between the post-acquisition abnormal returns to the bidders and the average proportion of contingent fees paid to the advisor. In tender offers, a strong negative relation exists between the average contingent fee paid to the acquiror and the post-acquisition abnormal return earned by the acquiror. Even after controlling for other variables that have been shown to affect post-acquisition abnormal returns, the higher the average contingent fees paid to investment banks in tender offers, the worse is the post-acquisition performance of the acquiror over a 12-month period after the completion of the acquisition. There is evidence that the market shares of investment banks in both mergers and tender offers are positively related to their ability to complete the deal. However, deal completion incentives in mergers are weaker than in tender offers; investment banks in mergers charge a much lower proportion of their fees as contingent fees than do investment banks in tender offers. In mergers, while first-tier investment banks do not advise deals that are consistently superior to those advised by lower-tier banks, they are also not associated with higher acquisition premiums nor do they complete significantly more deals than lower-tier banks. Moreover, the proportion of contingent fees paid in an acquisition does not have any explanatory power in measuring the post-acquisition performance of acquiring firms. Therefore, though investment banks have some incentives in mergers to complete the deal, these incentives do not necessarily result in value-destroying deals for acquirors. In tender offers, however, there is strong evidence that the market share of an investment bank is related to its ability to complete a deal, irrespective of whether the deal actually adds value to the acquiror. The remainder of the paper is structured as follows. Section 2 surveys the literature. Section 3 describes the data. Section 4 discusses the methodology and results. The last section concludes.

I investigate the determinants of market share for investment banks advising acquirors in mergers and tender o ! ers. I " nd that the incentive fee structure charged by di ! erent types of investment banks is related to their market shares, with " rst-tier banks charging much higher proportions of their fees contingent on the completion of the acquisition than third-tier investment banks. I also " nd that the market share of investment banks in both mergers and tender o ! ers is signi " cantly positively related to the percentage of deals completed by the bank in the past. Market share is not related to the post-acquisition performance of acquirors the bank has advised in the past. Consistent with the deal completion hypothesis, whereby bank market share depends on the number of deals completed, I " nd that " rst-tier banks complete a signi " cantly greater proportion of the tender o ! ers they advise than either second- or third-tier banks, while the proportions of mergers completed is similar across the di ! erent categories of investment banks. Inconsistent with the superior deal hypothesis, whereby bank market share depends on the perfor- mance of the acquiror, I " nd that in mergers, clients of " rst-tier investment banks earn lower announcement-period excess returns than clients of second- and third-tier investment banks. Also inconsistent with the superior deal hypothesis, acquirors in tender o ! ers advised by " rst-tier investment banks earn higher announcement-period excess returns than acquirors advised by second- or third-tier investment banks in tender o ! ers, but acquirors advised by " rst-tier investment banks do not complete a greater proportion of deals when the announcement-period excess returns earned by the acquiror are positive, than when these returns are negative. Acquirors in tender o ! ers advised by third-tier banks also pay a median premium much lower than the premiums of advisors advised by " rst- or second-tier banks, a result consistent with evidence reported by McLaughlin (1992). The premiums paid in acquisitions advised by the di ! erent categories of investment banks in mergers are indistinguishable from one another. In tender o ! ers, paying higher contingent fees can actually hurt the acquiror in the longer term. Bidders in tender o ! ers display a signi " cant negative relation between the abnormal return they earn over the 12 months following the acquisition and the average percent contingent fees they pay. No such relation is observed in mergers. The market shares of investment banks advising acquirors in either mergers or tender o ! ers are positively related to their ability to complete the deal. In mergers, however, deal completion incentives for investment banks are weakerthan for investment banks advising acquirors in tender o ! ers. Thus, while the announcement-period returns to acquirors advised by top-tier investment banks are signi " cantly lower than the returns to acquirors advised by lower-tier banks, top-tier investment banks do not complete signi " cantly more deals than lower- tier banks. In addition, the proportion of contingent fees paid in an acquisition does not have any explanatory power in measuring the post-acquisition perfor- mance of acquiring " rms. Therefore, though investment banks advising mergers have incentives to complete the deal, these incentives do not necessarily result in value-destroying deals for acquirors. In tender o ! ers, the market share of an investment bank is related to its ability to complete a deal, irrespective of whether the deal actually adds value to the acquiror. Therefore, one explanation of the contingent fee puzzle noted by McLaughlin (1992) is that these fees do not result in perverse incentives for investment banks. The data suggest that contingent fees are used by bidders in investment banks largely to ensure the completion of an acquisition, a task for which this fee structure is eminently suited. Banks respond to these incentives and the market share of an investment bank advisor in tender o ! ers is related to its ability to complete a deal. These " ndings are not consistent with the hypothesis that the large con # icts of interest generated between investment banks and their clients (due to the contingent fee structure in most acquisition advisory contracts) will be mitigated by the investment bank ' s concern for its reputation or market share. Consequently, these " ndings contradict the assump- tion common in the literature that banks will not behave opportunistically in such transactions. Two puzzles remain unanswered. Why is the ability to conclude a deal more important for investment banks in tender o ! ers than in mergers? Perhaps this is because mergers are negotiated deals. Because the acquiror is more certain that the deal will be completed, the completion portion of the transaction is less important. Secondly, why does the market fail to recognize that providing incentives to complete a deal does not necessarily result in value maximization for the acquiror? Further research is needed to answer these questions.