Abstract:

Chapters 1 and 2 analyze the market for corporate control and acquisitions by explicitly modeling a typical firm's choice whether to become a potential acquirer or target. I add synergistic motives to a multitask principal-agent framework with moral hazard between managers and shareholders. I argue that the terms of an M&A deal are determined not in isolation but in a market equilibrium context, therefore the merger transaction is embedded in a dynamic general-equilibrium search-and-matching model. This framework links explicit and implicit incentives in a novel way. By modeling the choice explicitly I reconcile the puzzling evidence that in mergers target shareholders gain whereas acquirer shareholders seem to lose or gain nothing, yet most of the time they do not block the acquisition. Apart from reconciling the aforementioned puzzle, it is shown that Golden Parachutes are the optimal form of compensation regarding merger-related incentives. The model also explains financial intermediation in the M&A market. I establish efficiency results and explain how merger waves might arise, in addition to other (testable) implications.

In chapter 3, I test three hypotheses based on the theory in preceding chapters. I estimate models regarding the target/acquirer decision and merger abnormal returns using an event-studies methodology and a panel dataset from 1990 to 2006. I find that golden parachute adoption increases the likelihood of becoming a target and is positively related to merger premiums, especially and surprisingly, for the acquirer. It is also found that, in general, proxies for search frictions have the expected signs. In summary, I seem to find no major inconsistency with the theory.

JEL classification. C78, D82, D83, G34, J33, G14, M52.

Keywords. Mergers and Acquisitions; Search and Matching Models; Moral Hazard; Multitask; Golden Parachute; Implicit Incentives; Abnormal Return; Synergy.