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The Market for Corporate Control and the Agency Paradigm

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  • Norvald Instefjord

Abstract

The paper analyzes the role of agency driven takeover activity. The analysis shows that takeovers can play an important role in reducing agency costs even though the gains from the corporate restructuring that follows the takeovers are zero, which counters existing models of agency driven takeover activity. The model can therefore form the basis for deriving empirical predictions which discriminate between the "agency paradigm" and the "corporate restructuring paradigm" of takeover activity. Negative post-merger performance (Agrawal et al., 1992), which is inconsistent with corporate restructuring is consistent with this model, and that takeover target's investment levels are below or at the average (Servaes 1994), which is inconsistent with the free cash flow theory is also consistent with this model. JEL numbers: G14, G31, G32, G34.

Suggested Citation

  • Norvald Instefjord, 1999. "The Market for Corporate Control and the Agency Paradigm," Review of Finance, European Finance Association, vol. 3(1), pages 1-22.
    • Handle: RePEc:oup:revfin:v:3:y:1999:i:1:p:1-22.
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    File URL: http://hdl.handle.net/10.1023/A:1009829729075
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    Cited by:

    1. Todtenhaupt, Maximilian & Voget, Johannes & Feld, Lars P. & Ruf, Martin & Schreiber, Ulrich, 2020. "Taxing away M&A: Capital gains taxation and acquisition activity," European Economic Review, Elsevier, vol. 128(C).

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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