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Individual Investment Banker Connections, Advisor Choice, and Merger Performance

Alternativ tittel: Individual Investment Banker Connections, Advisor Choice, and Merger Performance

Tildelt: kr 0,65 mill.

The Effect of Manager Human Capital in Private Equity Investments We show that more experienced managers of private equity (PE) investments are more likely to have an IPO exit from their investments, even after controlling for total investment firm experience. Furthermore, we show that IPO exit success is more likely for management teams that have a higher percentage of their team which are graduates from top tier universities or had prior investment banking experience. Relatedly, we also find the fraction of the team that earned an MBA, had prior PE investing experience, or had prior Strategic consulting experience does not significantly contribute to the likelihood of a PE investment having an IPO exit. Additional results indicate that many M&A exits are likely disguised failures.

The project has explored the effects of manager's human capital in the field of private equity. This has the potential to lead to a meaningful publication in a high quality journal. The results of the study indicate that the most impactful types of human capital in private equity investments are: 1. prior investment experience, 2. being educated at a top tier university, and 3. a background in investment banking. The paper will require additional robustness check and refinement as it is presented and comments are received.

We wish to better understand the channel through which investment bankers can influence acquisition performance. In particular, we intend to explore if educational connections between individual investment bankers and a firm's management and/or board of directors is an important driver in the choice of the investment bank/banker. Further, we will also examine how such educational connections can impact the performance of acquisitions. During an acquisition, an acquiring firm utilizes the help of investment bankers to assess the synergistic value of the deal to the acquirer, design a negotiating strategy as well as price the purchase, and complete the acquisition a target firm. One interesting question in this context is whether the acquiring firm's management and/or board of directors be influenced by educational connections in choosing the investment bank to use as advisor? If it is the case that educational connections allow for greater trust between the firm's managers or directors and the investment banker, can that trust lead to informational advantages for the acquiring firm, resulting in more valuable acquisitions? Could educational connections give greater incentives to investment bankers to perform better due diligence and to work harder? Or, is it the case that educational connections influence firms to give their business to sub-optimal "friends" of the firm rather than the potentially best available investment banker? With these questions in mind, we wish to first analyze if educational connections are an important determinant of which investment banker a firm will hire. Secondly, we wish to see if investment banker-firm educational connections are associated with better or worse acquisition announcement effects and higher or lower long-term performance for the acquiring firm. Additionally, we wish to see in which industries, time periods, or situations do educational connections matter more.