Implications of investment banks’ reputation and specialisation on initial public offerings and corporate takeovers

Bessala, J-L

Abstract

This research thesis examines the implications of investment bank reputation and specialisation on the outcomes of mergers and acquisitions (M&A) and initial public offering (IPO) settings. With regards to M&A settings, we study the impact of top-tier and boutique investment banks acting as financial advisors on the acquirer’s announcement returns and the deal’s time to resolution. Regarding IPO settings, we evaluate the impact of investment banks' reputation and specialisation when acting as IPO lead managers on IPO underpricing, investor attention, and waiting periods.

Using a sample of 3654 acquisitions announced between 2000 and 2015 in the U.K., and after controlling for endogeneity, we find that neither the reputation nor the specialisation of financial advisors’ matter significantly to bidder’s shareholder’s wealth in UK private acquisitions. Acquirers find boutique advisors witness a marginal decrease in shareholders’ wealth of about 2.6%. Top-tier cannot deliver positive returns to bidding firms. However, the reputation of the acquirer’ advisors’ matters to the deal time to resolution. The evidence provides support to the “diligent advisor” hypothesis, as top-tier advisors are found to take a longer period to complete public acquisitions. Contrary to their counterparts, we find that boutique advisors do not influence the deal time to resolution.

Based on a sample of 1535 IPOs conducted between 1995 and 2015 in the U.K., and after controlling for endogeneity, we find that boutique lead managers have a positive but marginal impact on underpricing for IPOs listed on the Alternative Investment Market (AIM). On the other hand, top-tier underwriters are not able to influence the underpricing incurred by issuing firms. Neither boutique nor top-tier lead managers are found to influence investor attention as measured by the average share turnover ratio in the one-year period following the IPO. Moreover, we find that top-tier lead managers take more time to take a firm public compared

to their counterparts, especially in AIM IPOs. We also evidence that boutique lead managers are able to influence the length of the waiting periods as they take a shorter period to take IPO firms public.

Citation

Bessala, J. (in press). Implications of investment banks’ reputation and specialisation on initial public offerings and corporate takeovers. (Thesis). University of Salford

• Thesis Type: Thesis
• Acceptance Date: Jan 21, 2022
• Deposit Date: Feb 11, 2022
• Publicly Available Date: Feb 11, 2022
• Award Date: Feb 28, 2021