Intermediation in Corporate Finance

Abstract

This dissertation consists of two chapters about the financial intermediation in corporate finance.The role of investment banks as financial intermediaries has been studied in the context of various corporate events. Financial intermediaries assist with the information dissemination process and offer certification in contexts like corporate control actions and security offerings. Their role has been proven and shown to matter as far as the propensity, the pricing and the attributes of these corporate events are concerned. I focus on privately placed securities (Chapter one) and corporate control actions (Chapter two). In the first chapter, I examine private placements of non-underwritten equity with a limited investor base. I posit that better firms place their equity directly with investors, whereas issuers’ reliance on placement agents to place their shares indicates relative weakness. Indeed, non-intermediated equity placements evoke a significantly positive, average 5-day announcement period CAR (cumulative abnormal return) of +9.01%. The corresponding announcement period CAR for intermediated deals is a significantly negative -2.63%. Drawing upon these and additional insights from the related literature, I create a new reputation measure for placement agents. Unlike traditional reputation measures, mine is consistently and positively associated with deal-announcement CARs. In the second chapter, I study the changes in the use of investment bank advice by acquirers during 1981–2017. Since 1980s, the use of acquirer advisors fell by 42%. During 1980s–2000s, advisor-assisted acquirers underperform relative to in-house acquirers by 0.5% to 1.3%. In the 2010s, advisor-assisted acquirers overperform in-house acquirers by 1.5%. Unlike in the earlier periods, syndicate-assisted acquirers overperform single-advisor acquirers in the 2010s. Average performance of advisor-assisted acquirers significantly determines future use of investment bank advice. I conclude that in response to client underperformance and a decline in the demand for advisory services, advisors improve their services.