The Relationship Between Financial Advisors’ Reputation And The Market Reaction To M&A Announcements

In recent years, with development of Chinese capital market, more and more capital instruments are used in China. And merger & acquisition is one of them. Especially in recent 10 years, there is significant trend that merger & acquisitions are booming rapidly. Furthermore, IPOs have stopped since November 16,2012. More and more unlisted companies are willing to sell themselves to listing companies. This trend facilitates a booming M&A era. We can always see financial advisors behind these M&A deals. They assist listing companies to buy companies and assets. Actually, since 2000, among each year’s top 100 deals, financial advisors involved in more than 90% of those deals.This paper studies M&A deals from 2008 to 2013 in the Chinese A share Market. With case methods, I study the relationship between financial advisors’reputation and the market reaction to M&A announcements. In two different announcement window periods, (-2,+2) and (-7,+2), both cumulated abnormal returns are significantly positive. Based on the empirical regression, we have five conclusions:1) There is information leakage in the Chinese A share market. The involvement of financial advisors can significantly lower the degree of information leakage, but cannot avoid it.2) There is a significant positive relationship between the involvement of financial advisors and the market reaction to M&A announcements.3) No matter in related M&A deals or unrelated M&A deals, significantly positive relationships between the involvement of financial advisors and the market reaction to M&A announcements are found.4) If the financing method is equity, financial advisors can help listed companies to pay a better price. Thus, the market will give a positive reaction.5) Financial advisors cannot provide additional value, if companies pay cash only. However, financial advisors can provide additional value, if companies use other complex payment.