DOES THE FORM OF COMPENSATION MATTER - INVESTMENT BANKER FEE CONTRACTS IN TENDER OFFERS

The role of fee contracts in the agency relation between investment bankers and client firms in tender offers is investigated using a sample of offers between 1978 and 1986. Different fees have different payoff functions which can be used by firms to create incentives and by bankers to signal differences in abilities. The effectiveness of fee contracts in resolving agency problems is tested, with mixed results. The evidence suggests that fee contracts are used as a tool by both firms and bankers and that contracts influence tender offer outcomes but that contracting is only a partial solution to the agency problem.