Relationships with Investment Banks and Acquisition Performance

Although the importance of relationships between M&A advisors and the acquirer for its performance is well known, we know less about the role of M&A advisors’ relationships with the target. Embeddedness theory suggests that such relationships will especially matter when firms face a long as opposed to a short shadow of the future. We study M&A deals around the market crash of 2000. We find that the acquirer and target advisors’ relationships to the target improve the acquirer’s performance but do not impact the target’s performance. Hence, while pursuing self-interest by choosing to satisfy their acquirer clients with whom they have a long shadow of the future, economic actors avoid imposing costs on target clients with whom they have a short shadow of the future.