Merger Efficiency and Managerial Incentives

Kräkel, Matthias und Müller, Daniel (2. Juni 2013): Merger Efficiency and Managerial Incentives. SFB/TR 15 Discussion Paper No. 410

Abstract

We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. We derive conditions under which shareholders prefer a self-commitment policy or a rent-reduction policy to deter the CEO from opportunistic recommendations.

• Dokumententyp: Paper
• Publikationsform: Preprint
• Keywords: acquisition; merger; moral hazard
• Fakultät: Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems ; Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B4 - Die Gestaltung von Turnieren im Rahmen der Corporate Governance
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: D82, D86, G34
• Sprache: Englisch