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Viceroys or Emperors? An Institution‐Based Perspective on Merger and Acquisition Prevalence and Shareholder Value

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  • A. J. J. (Ron) Maas
  • P. P. M. A. R. (Pursey) Heugens
  • Taco H. Reus

Abstract

We study how cross‐country variance in institutions that aim to address core agency problems influences consequential strategic decisions of firms around the world. Scholars frequently argue that the interests of minority shareholders are threatened by merger and acquisitions (M&As) due to principal‐agency problems. Rather than acting in shareholders’ best interests, managers potentially act as viceroys, using M&As to cushion themselves from risk and extract more pay. Yet equally salient is the issue of principal‐principal agency, where controlling shareholders can behave as emperors who use M&As to siphon off assets and profits, and appropriate wealth of shareholders with fewer control rights. Taking an institution‐based perspective on these ‘viceroy’ and ‘emperor’ problems, we conjecture that institutions aimed to address these agency problems can generate the desired outcome regarding M&A prevalence, but may also produce unintentional negative consequences for shareholder value as a side‐effect. Empirical evidence covering M&As from 73 countries supports our hypotheses.

Suggested Citation

  • A. J. J. (Ron) Maas & P. P. M. A. R. (Pursey) Heugens & Taco H. Reus, 2019. "Viceroys or Emperors? An Institution‐Based Perspective on Merger and Acquisition Prevalence and Shareholder Value," Journal of Management Studies, Wiley Blackwell, vol. 56(1), pages 234-269, January.
    • Handle: RePEc:bla:jomstd:v:56:y:2019:i:1:p:234-269
    DOI: 10.1111/joms.12335
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    Cited by:

    1. Birhanu, Addis Gedefaw & Geiler, Philipp & Renneboog, Luc & Zhao, Yang, 2021. "Acquisition experience and director remuneration," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    2. Oh, Hyunjin & Chung, Chune Young & Fard, Amirhossein, 2023. "Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. David R. King & Gang Wang & Mehdi Samimi & Andres Felipe Cortes, 2021. "A Meta‐Analytic Integration of Acquisition Performance Prediction," Journal of Management Studies, Wiley Blackwell, vol. 58(5), pages 1198-1236, July.
    4. Andrei Filip & Gerald J. Lobo & Luc Paugam & Hervé Stolowy, 2022. "Disclosures About Key Value Drivers in M&A Announcement Press Releases: An Exploratory Study," Abacus, Accounting Foundation, University of Sydney, vol. 58(1), pages 62-104, March.
    5. Birhanu, Addis & Geiler, Philipp & Renneboog, Luc & Zhao, Yang, 2021. "Acquisition experience and director remuneration," Other publications TiSEM 6c1d41ae-5e2a-4868-b1af-1, Tilburg University, School of Economics and Management.
    6. Andrikopoulos, Andreas & Merika, Anna & Merikas, Andreas & Sigalas, Christos, 2021. "Related party transactions and principal-principal conflicts in public companies: Evidence from the maritime shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    7. Chengguang Li & Oded Shenkar & William E. Newburry & Yinuo Tang, 2021. "How Country Reputation Differentials Influence Market Reaction to International Acquisitions," Journal of Management Studies, Wiley Blackwell, vol. 58(6), pages 1609-1639, September.

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