Incentives in Mergers & Acquisitions

This survey reviews the literature on the role of incentives in mergers and acquisitions. We examine the incentives of the most important players in M&A decisions: acquirer and target executives, acquirer and target directors, shareholders, merger arbitrageurs, and investment bankers. We concentrate on incentives that affect the focus on value maximization, whether they be incentives to prioritize or deviate from it, and we cover financial incentives, private benefits, empire building, career concerns, and risk-reduction motives. We find a complex web of offsetting and reinforcing incentives among the decision makers, each of whom anticipates the others' incentives, and we argue that the acquisition market itself generates important incentives that discipline managers.