The Role And Performance Of Top Financial Advisors In M&A

China is the second largest M&A market in the world.At the end of 2019,M&A transactions in domestic China had 10,992,with a total amount of 2.68 trillion yuan,which was 2.7%of GDP in that year.According to the data provided by the wind database:the top-tier investment banks advised on over 50%of these deals by transaction value from 2014.This phenomenon shows that a few top-tier investment banks has the most of the M&A market share.However,do top-tier financial advisors really perform better than non-top financial advisors in M&A market?This paper investigates the role and performance of top-tier investment bank in M&A market of China,based on a large sample of M&A transactions announced from 2014 to 2018 of Shanghai and Shenzhen stock markets.We ranked investment banks according to the value of deals they advised on.Then,we classified the top-8 investment banks(excluded Southwest Securities)by the value of deals advised as top-tier,and all other financial advisors as non-top-tier.Firstly,this paper re-examined the relationship between advisor reputation and bidder CAR,?ROE in multivariate OLS regression analysis.The outcome of it showed that whether to hire top-tier investment bank or not did not significantly affect the short-term or long-term performance of the tender company.However,a decision to employ a top-tier or a less prestigious advisor was a matter of choice on the part of the bidder and the advisor.In this case self-selection bias could emerge,producing unreliable OLS estimates.Then this article used Heckman's method to modify the selection bias.In the first-stage equation models the choice between a top-tier and a non-top-tier advisor could effected by the business relationship with them.After correcting for the self-selection bias,although it still has no impact on the long-term operating performance of the M&A,the short-term M&A performance of the tender company has significantly improved.Then,top-tier advisors are preferred by bidders if they pay more attention to shareholders' short-term gains.Secondly,this paper further studied the relationship between the choice of top financial consultants with the completion time and rate of M&A.The regression results showed that here was no evidence that top-tier investment bank was associated with more or less time from announcement to completion.Moreover,the research also showed that top-tier advisors were associated with higher deal completion ratiosFinally,this article had the following conclusions:1)The choice of top-tier financial advisors based on the market share ranking of investment banks were reliable;2)Top-tier financial advisors could increase shareholders'short-term gains after the announcements of M&A deals,but they had no effect on bidder companies' long-term performances;3)Hiring a top-tier or non-top-tier financial advisors had no effect on the completion time of M&A transactions;4)Top-tier financial advisors could significantly improve the completion ratio of M&A transactions.The innovations of this article are:1)This article studied the relationship between the top-tier financial advisors with the short-term and long-term performance of M&A in the same time;2)This paper first introduced a new variable which described the business relationship between the bidder companies and the top-tier financial advisors to study the selection mechanism of top-tier financial advisors.This variable measured the extent to which the bidding firm used the services of a top-tier investment bank across various capital market transactions in the past.Then,this paper used Heckman's method and corrected the self-selection bias.This article has combed the relevant literature of the investment bank's reputation mechanism and M&A performance more comprehensively,and provided suggestions and enlightenment for Chinese companies to hire investment bank in M&A.