When and Why Advisory Firms Help Acquisition Performance: The Role of Contemporaneous Capital

Abstract

M&A research suggests that advisors can help and hurt acquisition performance. However, few studies consider that these attributes may be interrelated. To capture this interrelationship, we focus on four sources of knowledge—contemporaneous capital (advisor’s concurrent experience working with multiple acquirers), relational capital, the acquirer’s knowledge from its prior acquisitions, and the acquirer’s knowledge of the target’s industry. Building on learning and agency theories, we hypothesize that the positive performance effect of contemporaneous capital is moderated by relational capital, acquisition experience, and industry similarity. Using a large sample of deals over an 18–year period, we find that advisors generally help their clients (as reflected in higher performance) but tend to exploit their clients’ vulnerabilities (leading to lower performance) when they lack contemporaneous capital.