Investment Bank Market Share, Contingent Fee Payments and the Performance of Acquiring Firms

P. Raghavendra Rau

Krannert School of Management, Purdue University

This paper investigates the determinants of the market share of investment banks acting as advisors in mergers and tender offers. It also examines the relation between bank market share, incentive fee structure and acquiror performance in mergers and tender offers. In both mergers and tender offers, I find a positive relation between the percentage of deals completed in the past by the bank and its subsequent market share. There is no relation between the market share of the bank and the performance of the acquirors advised by the bank in previous years. In addition, in tender offers, I find a positive relationship between investment bank market share and the contingent fee payments charged by the bank and a negative relationship between market share (and contingent fee payments) and the post-acquisition performance of the acquiror, suggesting that the contingent fee structure in tender offers is used to ensure that investment banks focus on completing the deal.

It has been published in the Journal of Financial Economics. A PDF version of the paper is available at the Elsevier site. Access to this site is controlled through your IP address. You get access if your institution subscribes to the Journal of Financial Economics

This paper has been presented at

• Loyola University, Chicago, October 1998;
• Indian Institute of Management, Bangalore, India December 1997;
• Stockholm School of Economics, Stockholm, March 1997;
• Financial Management Association, Hawaii, October 1997
• Western Finance Association, San Diego, June 1997;
• European Finance Association, Fontainebleau, August 1998;
• European Financial Management Association, Lisbon, June 1998;

• The Wall Street Journal, 3 June, 1999, page C1

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