The Impacts of Embeddedness between Investment Banks in M&A on M&A Fees

Embeddedness between agents may critically influence principals because many business transactions these days are largely conducted by agents which represent the principals. This study explores how embeddedness between agents affects their principals by focusing on agents’ opportunistic inclination. Using data of investment banks on M&A and M&A fees, this study found that M&A fees are likely to increase with the number of prior working relationships between investment banks, indicating that embeddedness between agents may deteriorate agency concerns. The results also show that embeddedness developed by working for the same client makes the principal pay higher M&A fees than embeddedness developed by working for the opposing clients. These findings provide a new approach to the literature on embeddedness and agency theory by emphasizing the embeddedness of agents as a critical consideration for agency concerns.