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Mergers and CEO Power

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  • Felipe Balmaceda

Abstract

I propose a model of mergers in which synergies and CEO power play a crucial role. A merger is modeled as a bargaining game between the acquiring and the target board of directors, with the gains from a merger divided according to the generalized Nash bargaining solution. The model's implications are consistent with the available empirical evidence on stock returns, and yield some new untested implications that are mainly related to the relationship between CEO power, corporate governance, and mergers. Finally, the model sheds light on the relationship between aggregate merger activity, synergies, and CEO power.

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  • Felipe Balmaceda, 2009. "Mergers and CEO Power," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(3), pages 454-486, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200909)165:3_454:macp_2.0.tx_2-j
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    2. Guthrie, Graeme, 2021. "A dynamic model of managerial entrenchment and the positive incentives it creates," Journal of Economic Dynamics and Control, Elsevier, vol. 123(C).

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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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