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Publications
Publications
  • April 2004
  • Article
  • Journal of Law, Economics & Organization

Do CEOs in Mergers Trade Power for Premium? Evidence from 'Mergers of Equals'

By: Julie Wulf
  • Format:Print
  • | Pages:42
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Abstract

I analyze chief executive officer (CEO) incentives to negotiate shared control in the postmerger governance of the surviving firm. In order to do this, I study abnormal returns in a sample of "mergers of equals" (MOEs) transactions in which the two firms are approximately equal in postmerger board representation. These transactions are friendly mergers generally characterized by premerger negotiations that result in both greater shared control (board and management) and more equal sharing of merger gains between the two firms. On average, the value created measured by combined event returns is no different between MOEs and a matched sample of transactions. However, target shareholders capture less of the gains measured by event returns in transactions with shared governance. Moreover, target shareholders' share of the gains is systematically related to variables representing postmerger control rights, and shared governance is more likely in transactions in which CEOs face greater incentives for control. The evidence suggests that CEOs trade power for premium by negotiating shared control in the merged firm in exchange for lower shareholder premiums.

Keywords

Mergers and Acquisitions; Negotiation; Governance Controls; Power and Influence; Value Creation; Business and Shareholder Relations; Governing and Advisory Boards; Motivation and Incentives; Market Transactions

Citation

Wulf, Julie. "Do CEOs in Mergers Trade Power for Premium? Evidence from 'Mergers of Equals'." Journal of Law, Economics & Organization 20, no. 1 (April 2004): 60–101.
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More from the Author

    • April 2014
    • Management Science

    Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management

    By: Maria Guadalupe, Hongyi Li and Julie Wulf
    • 2014
    • Faculty Research

    Pay Harmony: Peer Comparison and Executive Compensation

    By: Claudine Gartenberg and Julie Wulf
    • Fall 2012
    • California Management Review

    The Flattening Firm—Not As Advertised

    By: Julie Wulf
More from the Author
  • Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management By: Maria Guadalupe, Hongyi Li and Julie Wulf
  • Pay Harmony: Peer Comparison and Executive Compensation By: Claudine Gartenberg and Julie Wulf
  • The Flattening Firm—Not As Advertised By: Julie Wulf
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