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Christel Karsten

The law and finance of M&A contracts


This thesis considers the role of contracts and legal advisors in corporate acquisitions. M&A transactions are complicated because of economic concerns such as information asymmetry, agency problems, and risk allocation. Contract design can provide mechanisms to mitigate these concerns. This thesis analyzes whether contracts are used to alleviate such concerns by considering the drivers of contract outcomes. The first essay documents that the economic deal environment explains around one third of the variation in warranties and covenants, which are provisions to protect buyers against adverse selection and moral hazard. The styles of the involved law firms and lawyers explain an additional part of the variation. The second essay then shows that more buyer protection through warranties and covenants leads to significantly higher acquisition prices. Finally, the third essay studies the effect of lawyer expertise on contract design, the bargaining process, and acquisition prices. This essay documents that more lawyer expertise on one side of the negotiation table is associated with more beneficial outcomes for that side on all three fronts. Together, these results suggest that M&A contracts are not only a reflection of the underlying deal environment, but also of the styles of the involved legal advisors.                      

Supervisor: F. López‐de‐Silanes

Co-Supervisor:J.W. Winter