Synergy, Agency, and the Determinants of Premia Paid in Mergers

Hypotheses about the creation of value by mergers are tested on premia paid in a sample of one hundred recent acquisitions. The premia increase with financial, although not with real, synergies and with the scope for "managerial" behavior in the target firms. The acquirers' willingness to pay also increases with their scope for managerial behavior. The presence of either actual and potential rival bidders has a powerful effect, and the authors ascertain that market gains (losses) to acquirers' shareholders do not distort the associations between acquisition premia and sources of value. Copyright 1991 by Blackwell Publishing Ltd.

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