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Incentive Asymmetries in the Mergers and Acquisitions Process*
Author(s) -
Parvinen Petri,
Tikkanen Henrikki
Publication year - 2007
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/j.1467-6486.2007.00698.x
Subject(s) - antecedent (behavioral psychology) , incentive , shareholder , information asymmetry , business , value (mathematics) , process (computing) , microeconomics , economics , monetary economics , industrial organization , finance , corporate governance , computer science , social psychology , psychology , machine learning , operating system
This paper focuses on the relationship between incentive asymmetries and some potentially undesirable outcomes along the mergers and acquisitions (M&A) process which could potentially destroy the shareholder value of the merged corporate entity. Incentive asymmetries are seen as belonging to the three categories of ‘risk‐antecedent’, ‘information‐antecedent’ and ‘pure self‐interest antecedent’. We propose that incentive asymmetries are responsible for increases in the number of M&A projects and that they might create a ‘lemons problem’ with M&A candidates. Incentive asymmetries are also suggested to lead to prolonged contract‐writing phases, biased financial evaluations and acquisition price escalation, as well as undermined post‐M&A integration plans. If resolutions to these problems are sought, the use of high‐ and low‐powered incentive schemes will need to reflect risk, information and pure self‐interest.