Prior Client Performance and the Choice of Investment Bank Advisors in Corporate Acquisitions

Contrary to earlier studies, we find that prior client performance is a significant determinant of the likelihood that an investment bank will be chosen as the advisor by future acquirers and of the changes through time in banks' shares of the advisory business. Further, the changes in the market values of acquirers at the announcement of acquisition attempts are positively correlated with contemporaneous changes in the market values of their advisors. Two implications arise: (1) acquirers consider advisors' prior client performance when choosing their advisors and (2) market forces work to align advisors' and clients' interests in the acquisition market.