The Valuation Impact of Financial Advisors: An Empirical Analysis of REIT Mergers and Acquisitions

Abstract

This paper analyzes the effect of financial advisor-monitors on the valuation of real estate investment trust (REIT) mergers. Advisor choice determinants and the effect of advisors on transaction value are examined using a sample of REIT mergers for the 1981 to 2001 period. A two-stage target firm pricing model is estimated: the first stage (logit) estimates the probability of advisor use and the second stage analyzes the effect of advisors on target firm valuation. The results indicate that financial advisor monitoring, possibly by reducing information asymmetries, has significant positive effects on the value of REIT acquisitions.