Certification of acquisitions by external parties: evidence on acquirers’ banking relationships

This paper provides evidence that acquirers earn higher returns and are less likely to complete acquisitions when relationship banks play a certification role. The greater the intensity of the acquirer’s prior bank lending relationship, the higher the acquirer’s abnormal announcement returns, particularly if the deal is completed eventually. Conditional on merger completion, prior bank lending relationships are positively associated with the greater use of cash, indicating that studies finding positive returns for cash-financed acquisitions may contain bank certification effects.