Corporate life cycle, investment banks and shareholder wealth in M&As

Abstract

Abstract This study investigates corporate life cycle on the influence of shareholder wealth in M&As. Specifically, the current study examines whether firms in different corporate life cycle stages are more likely to hire financial advisors in M&As and whether financial advisors can create higher value to firms within various corporate life cycle stages. Using 919 targets and 3647 bidders during the period of 1995–2014, the results show that growth (stagnant) bidding firms are less (more) likely to hire financial advisors in M&As. In addition, the evidence reveals that stagnant targets earn higher announcement returns. The regression analysis reveals that targets in growth stages earn lower (higher) announcement returns when targets do not (do) hire financial advisors. Furthermore, stagnant bidders obtain lower announcement returns around merger and acquisition announcements, but experience higher post-announcement returns during the post-announcement period. While the regression analysis consistently shows lower announcement returns to stagnant bidders, the evidence indicates that mature bidders with the use of financial advisors obtain higher announcement returns in M&As. Given that bidders hire financial advisors, the regression analysis reveals that growth bidders obtain lower post-announcement returns. Instead, mature bidders that hire financial advisors obtain higher post-announcement returns during long run post-announcement period. Overall, this study sheds lights on the importance of corporate life cycle and financial advisors on shareholder wealth in M&As.