Expert advice in the presence of conflicts of interest: the case of star-crossed acquisitions

• 成果类型: Article
• 署名作者: Aharoni, Gil; Lim, Bryan; Litov, Lubomir P.; Neyland, Jordan B.
• 署名单位: University of Melbourne; University of Oklahoma System; University of Oklahoma - Norman; George Mason University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-022-09679-z
• 发表日期: 2023
• 页码: 1972-2001
• 关键词: Analyst coverage; earnings management; Investment banks; BAD BIDDERS; INFORMATION; performance; FIRMS; COMPENSATION; forecasts; ADVISERS

摘要

Expert advice is presumed to be more valuable, but, when the expert has a conflict of interest, overcoming that conflict is difficult. We examine the performance of acquirers who hire an adviser that employs an expert-a star analyst-who covers the target and show that such star-crossed acquirers fare worse than other acquirers along multiple dimensions, including lower announcement returns and higher subsequent goodwill impairments. We consider various explanations for these outcomes, and the evidence strongly points toward star-crossed acquirers being unable to mitigate their advisers' conflict of interest. Surprisingly, our analysis suggests that star-crossed managers are uninformed ex-ante about the low quality of the deals. Finally, we posit that a star-crossed adviser's advantage increases with the opacity of the target firm's accounting. Consistent with this, we find that, in star-crossed deals only, acquirer announcement returns decrease with target opacity.