حقوق مدیریتی، استفاده از بانک های سرمایه گذاری، و اثرات ثروت برای دستیابی به سهامداران شرکتها

We examine the relation between managerial rights in acquiring firms and the decision to use an investment bank in merger and acquisition deals, and explore whether this relation impacts the wealth effects for acquiring firms’ shareholders. We find that acquiring firms whose managers have relatively strong rights are more likely to use investment banks to facilitate deals and are more likely to use reputable banks. The wealth effects to acquiring firms are inversely related to the use of investment banks when managerial rights are relatively strong. However, the wealth loss is mitigated when acquiring firms use reputable investment banks.

Investment banks perform many important functions within the economy including underwriting securities, providing venture capital, conducting capital market research, and facilitating mergers and acquisitions (M&As). Theoretical models show that the general functions of financial institutions include reducing transaction costs (Benston and Smith, 1976), alleviating asymmetric information in imperfect markets (Leland and Pyle, 1977), and simultaneously producing information (Campbell and Kracaw, 1980). Consistent with these theoretical models, empirical studies document the positive contributions of investment banks in several functional areas such as underwriting and venture capitalism. Whether investment banks also add value as financial advisors in M&As remains unclear in the finance literature. We address this issue by analyzing how managerial rights in acquiring firms impact the decision to use an investment bank in M&As, and examining the value consequence of the interaction between managerial rights and the use of investment banks for acquiring firms’ shareholders. We draw on key studies from two strands of the existing literature in developing our hypotheses. The first strand examines the role of investment banks in M&As and is best exemplified by Servaes and Zenner (1996). They find that investment banks are more likely to be used in complex deals where their knowledge and expertise are needed to facilitate deal completion. The second strand focuses on whether antitakeover provisions, a measure of managerial rights, impact the market for corporate control. For example, Gompers et al. (2003) find that firms with more antitakeover provisions (ATPs) are more likely to undertake M&As. Masulis et al. (2007) find that acquirers with more ATPs experience lower announcement period abnormal returns compared to firms with less ATPs during the merger announcement period. Combining the two sets of studies we argue that managerial rights may influence both the propensity to use an investment bank in M&As and the resulting wealth impact for acquirers. Acquirers with strong managerial rights may be more likely to use an investment bank, since investment banks are skilled in deal completion and the fee contract between the investment bank and the acquirer stresses deal completion (Rau, 2000). On the other hand, investment banks need to maintain their reputation capital and may focus on adding value. We investigate whether managerial rights in the acquiring firm dominate the quality of the investment banks’ service. We find that strong managerial rights in acquiring firms are positively associated with the use of investment banks in M&As. This relation holds after controlling for deal and firm features such as transaction size, method of payment, type of transaction, and firm performance. Acquiring firms with relatively strong managerial rights are also more likely to use reputable banks. Further, the wealth effects to acquiring firms are inversely related to the use of investment banks when managerial rights are relatively strong. However, this effect is mitigated when acquiring firms use reputable investment banks. Our study makes two important contributions to the literature. First, we document the contingent nature of investment banks’ service: investment banks may help managerial empire building at the expense of shareholders when they are hired by acquiring firms with strong managerial rights. Stated differently, the participation of an investment bank, per se, does not have a negative impact on shareholders – the negative effect only arises when investment banks interact with managers with strong rights. Second, we show that the investment bank’s reputation capital does have an impact on the acquiring firm. It seems that investment banks use their reputation capital to counter the negative side of strong managerial rights to some extent. To the best of our knowledge, these results have not been documented in the literature. The remainder of the paper is organized as follows: Section 2 develops the hypotheses, Section 3 discusses the methodology and data, Section 4 presents empirical results, and Section 5 provides concluding remarks.

We investigate whether managerial rights in acquiring firms impact the decision to use an investment bank in M&A deals. We then examine the value consequence of the interaction between managerial rights and the use of investment banks for acquiring firms’ shareholders. We find that strong managerial rights in acquiring firms are positively associated with the use of invest- ment banks in mergers and acquisitions. This relation holds after controlling for deal and firm features such as transaction size, method of payment, type of transaction, and firm performance.We also find that acquiring firms with strong management are more likely to use reputable banks. Confirming the existence of an interaction effect between strong management and the use of investment banks, we find that when acquiring firms have strong management, the use of investment bank is associated with a sig- nificant wealth loss for the shareholders. However, the use of more reputable investment banks could be alleviating the value-loss. The findings suggest that investment banks may help managerial em- pire building at the expense of shareholders only when they facil- itate M&As among acquirers with strong rights.