INVESTMENT-BANKING CONTRACTS IN TENDER OFFERS - AN EMPIRICAL-ANALYSIS

Empirical analysis reveals that investment-banker advisory fees in tender offers average 1.29% of the value of a completed transaction, far below the levels often alluded to in the business press. Most fees are contingent on offer outcome, with target-firm fees typically contingent on transaction value and bidding-firm fees on the number of shares purchased. Although these contingent contracts motivate investment bankers to satisfy some client objectives, many also create conflicts of interest between banker and firm. These incentive problems are apparent in offer evaluation, in hostile offers, and in the price paid by bidding firms. © 1990.