Do Financial Advisors Matter for M&A Pre-Announcement Returns?

This study documents economically meaningful and persistent financial advisor fixed effects in target firms’ abnormal stock returns shortly prior to takeover announcements. Additional difference-in-differences analyses suggest that advisors are associated with lower pre-bid stock returns after their senior staff were defendants in SEC insider trading enforcement actions. Returns are higher for advisors with more previously advised deals and those located in NYC. The evidence helps explain the prevalent phenomenon of pre-bid stock returns. It contributes to the inconclusive literature on banks’ exploitation of private information gained via advisory services, which is limited to disclosed, traceable activities indicative of information leakage. This table shows the results of a linear regression of runups on the sum of target and acquiror CAR (columns 1 and 3) and the weighted sum of target and acquiror CAR (columns 2 and 4). The weighted sum is calculated using the relative market capitalization of the target and the acquiror as weights. The table reports point estimates and standard errors clustered by acquiror and year in parentheses. statistical Variable definitions are provided in Table A1.