How legal advisors affect mergers and acquisitions: Evidence from high tech industries

Abstract

This paper investigates the relationship between top-tier legal advisors and M&As using the sample of 8509 M&A deals during 1985–2023 in the high-tech industries. We find that acquirers experience significantly lower returns from the deal when hiring top-tier legal advisors, with −2.14% for the 3-day window and −2.16% for the 5-day window, respectively. To address potential self-selection bias, we employ two-stage residual inclusion (2SRI) and propensity score matching (PSM) methods, confirming the robustness of these findings. Despite unfavorable short-term market reactions, top-tier legal advisors are associated with positive long-term abnormal returns and are critical in managing deal complexity, enhancing negotiation power, and lowering deal premiums. While they improve deal completion rates, their involvement also extends completion times. These findings highlight the strategic role of top-tier legal advisors in high-tech M&A transactions.