Agency problems as antecedents to unrelated mergers and diversification: Amihud and Lev reconsidered

Article Abstract:

Amihud and Lev's agency theory posited that principals and agents favor higher-return projects over lower-return projects but they differ in their preferences for uncertainty or risk linked to these projects. Their 1981 paper showed that managers, if not strictly checked by large block shareholders, will try to minimize their employment risk using unrelated mergers and acquisitions. A reexamination of this study was performed to determine the applicability of agency theory to strategic behaviors. This new study tested hypotheses pertaining to the relationship among ownership structure, board vigilance, corporate strategy and corporate performance. Using data used by Amihud and Lev as well as new data, the study did not support either the conclusions of Amihud and Lev or the aforementioned agency theory.

Corporate governance, Strategic planning (Business), Conflict of interests (Agency), Agency theory, Conflicts of interest

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Post-acquisition financial performance and executive compensation

Article Abstract:

The effects of post-acquisition financial performance on executive compensation were investigated by analyzing 127 firms. Acquiring firms and non-acquiring firms were compared in terms of size, type of acquisition, executive motivation, and financial results. The results indicated that major acquisitions led to poor post-acquisition performance, and executives of those companies experienced considerable increases in compensation. Non-acquiring firms exhibited a strong relationship between performance and changes in executive compensation.

Analysis, Compensation and benefits, Executives, Executive compensation, Management research

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