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Raghavendra Rau

Raghavendra Rau

Working papers

How do serial acquirers choose the method of payment? (with Antonio Macias and Aris Stouraitis)

Published papers

Mergers and acquisitions
Investment Bank Market Share, Contingent Fee Payments and the Performance of Acquiring Firms , JFE
Glamour, Value and the Post-Acquisition Performance of Acquiring Firms, JFE

Investment Bank Market Share, Contingent Fee Payments and the Performance of Acquiring Firms
Journal of Financial Economics, 56, 293-324, 2000.

In this paper, I investigate the determinants of the market share of investment banks acting as advisors in mergers and tender offers. While it is commonly believed that investment banks play a significant role in mergers and acquisitions, evidence on the exact role is mixed. This study extends the literature on the role of investment banks in mergers and acquisitions. Second, this study adds to the growing literature that examines the degree to which the market share for a financial intermediary is correlated with the "success" of the transactions it advises. Empirical evidence on this subject is inconclusive, with some studies finding a strong correlation and others finding no relation.

This relationship between market share and success is especially interesting in the case of mergers and tender offers because the fee structure faced by investment banks in these transactions is, in many cases, biased towards completing the deal, and it has been shown that this fee structure can lead to significant conflicts of interest between the investment bank and its client and bias the bank's advice in favour of completing the deal even when not completing the deal would leave the acquiror firm's shareholders better off. Does anything prevent the bank from indulging in such opportunistic behavior? That is the subject of this paper.

Glamour, Value and the Post-Acquisition Performance of Acquiring Firms
with Theo Vermaelen
INSEAD, Boulevard de Constance, Fontainebleau, France
Journal of Financial Economics, 49, 223-253, 1998.

This paper uses a methodology robust to recent criticisms of standard long-horizon event study tests to show that bidders in mergers underperform while bidders in tender offers overperform in the three years after the acquisition. However, the long-term underperformance of acquiring firms in mergers is predominantly caused by the poor post-acquisition performance of low book-to-market "glamour" firms. We interpret this finding as evidence that both the market and the management overextrapolate the bidder's past performance (as reflected in the bidder's book-to-market ratio) when they assess the desirability of an acquisition.