Paying merger advisors only if the deal goes through actually gets better results than paying them fees that are 'aligned' with the company.
March 24, 2026
Original Paper
Biased is Best: Merger Advisors and Dialectical Bayesian Persuasion
SSRN · 6396319
The Takeaway
Standard economics suggests that paying a middleman only if they close a deal encourages them to push bad deals on their clients. This paper shows that because both sides have biased advisors, the 'persuasion game' between them reveals more truth and creates better outcomes than if the advisors were neutral or aligned with their clients.
From the abstract
Success-fee compensation for merger advisors, i.e., contingent compensation dependent only on whether the merger is effected, is very pervasive but also very controversial. Viewed through the lens of principalagent theory, untethering advisors' compensation from the value their actions create is problematic. We examine concerns regarding merger advisors' compensation through a broader lens by modeling acquisition attempts as Bayesian persuasion games featuring four actors: two firms (bidder and