The role of financial advisor's industry expertise in M&A quality: Evidence from goodwill impairment

Using a sample of publicly-listed Chinese firms during the period 2008 to 2017, we investigate the impact of financial advisors' industry expertise on the quality of material asset reorganization M&As. We find that acquirers who engage financial advisors with industry expertise experience significantly less inflated goodwill, fewer impairments, and better long-term operational performance. This is particularly evident in cross-region and complex M&A transactions where information asymmetry is more severe, thus supporting our information acquisition hypotheses. Furthermore, we find that the positive effect of engaging financial advisors with industry expertise is more pronounced in M&As where acquirers have poorer corporate governance, which is consistent with our monitoring hypothesis. Additionally, our cross-sectional regressions suggest that the effects of financial advisors' industry expertise are greater in non-state-owned enterprises (non-SOEs) and for deals involving multiple financial advisors. Our study not only adds to the ongoing debate on financial advisors' industry expertise but also provides valuable insights for regulators seeking to monitor M&A transactions facilitated by financial intermediaries.

Automated summary

Using a sample of publicly-listed Chinese firms from 2008 to 2017, this study examines the impact of financial advisors' industry expertise on the quality of material asset reorganization M&As. The findings show that acquirers who engage financial advisors with industry expertise experience less inflated goodwill, fewer impairments, and better long-term operational performance, particularly in cross-region and complex M&A transactions with severe information asymmetry. The study also suggests that the positive effect of engaging financial advisors with industry expertise is more pronounced in M&As with poorer corporate governance, and is more significant in non-state-owned enterprises and deals involving multiple financial advisors.