Does employing a highly ranked financial advisor improve investment returns in mergers and acquisitions? How does the composition of the corporate board impact the performance of the management team? Do political connections impact company performance in bad market conditions?
These are just some of the questions that researchers pose in the field of corporate finance. Dr. Ahmad Ismail, associate professor of finance at the Suliman S. Olayan School of Business in the American University of Beirut, is currently addressing some of those interesting, though sometimes difficult to answer, questions. Dr. Ismail, who holds an MBA as well as a Ph.D. in Finance, is a leading expert in the region on corporate finance and specifically in the field of mergers and acquisitions. Finance professors from elite business schools around the world have cited Dr. Ismail's papers.
Through researching over 6,000 merger deals in the United States, Dr. Ismail investigated whether hiring prestigious investment banks resulted in larger gains to acquisition targets, bidders and the combined entity. The result of his analysis showed that, counter-intuitively, employing prestigious (tier-one) financial advisors destroyed value of more than $42 billion for acquiring firms' shareholders, whereas acquirers advised by tier-two investment banks generated a total dollar gain of more than $13.5 billion. These findings are extremely relevant for those involved in merger and acquisition deals: the selection of an investment banks should be based on their track record in generating gains for clients, not on whether they are classified as tier-one financial advisors.
Another study, closer to home, involved companies in the Gulf Cooperative Council (GCC) countries, where he studied the optimal corporate ownership structure that fits the corporate governance model in the region. The results of Dr. Ismail's analysis uncovered positive impacts on performance when government or local corporations hold the majority of shares. This research has significant implications for foreign investors interested in expanding their operations in the region, in terms of how to structure their companies and corporate boards. This is also particularly important when the market conditions are not very favorable, as the presence of local partners and/or the government on the corporate board would be associated with many benefits. Dr. Ismail noted that “companies need to be aware of the importance of government support and political connections that could prove to be helpful in poor market conditions."