The Role of Financial Advisors in Mergers and Acquisitions
May 2000
Linda Allen, Julapa Jagtiani, and Anthony Saunders
ABSTRACT
This paper looks at the role of commercial banks and investment banks as financial advisors. Unlike some areas
of investment banking, commercial banks have always been allowed to compete directly with traditional investment
banks in this area. In their role as lenders and advisors, banks can be viewed as serving a certification function.
However, banks acting as both lenders and advisors face a potential conflict of interest that may mitigate or offset
any certification effect. Overall, it is found that, in their merger and acquisition advisory function, the certification
effect of commercial banks dominates the conflict of interest effect and that
the certification effect is particularly strong when the target’s own bank advises merger targets.
Subject: Corporate Finance/M&A
Linda Allen
Institution: Zicklin School of Business, Baruch College, University of New York
Julapa Jagtiani
Institution: Supervision and Regulation, Federal Reserve Bank of Chicago
Email: Jagtiani@Chi.Frb.Org
Telephone: (312) 322-5894
Anthony Saunders
Institution: Stern School of Business, New York University
Email: asaunder@stern.nyu.edu
Telephone: (212) 998-0711
Home Page: http://www.stern.nyu.edu/~asaunder
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