Merger efficiency and managerial incentives

Matthias Kräkel and Daniel Müller

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.

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Year of publication:	2013
Authors:	Kräkel, Matthias ; Müller, Daniel
Publisher:	Mannheim [u.a.] : Sonderforschungsbereich/Transregio 15
Subject:	acquisition \| merger \| moral hazard \| Fusion \| Merger \| Moral Hazard \| Moral hazard \| Übernahme \| Takeover \| Theorie \| Theory \| Prinzipal-Agent-Theorie \| Agency theory \| Effizienz \| Efficiency \| Führungskräfte \| Managers \| Leistungsanreiz \| Performance incentive