Abstract
We theorize and empirically explore how synergistic incentives for mergers and acquisitions (M&A) influence acquisition premiums paid, under different corporate governance arrangements. Based on a sample of 703 completed US M&A deals, we find financial and operational synergies to be the main drivers of acquisition premiums. The influence of operational synergies on premiums is amplified by acquirer CEO/Chair duality and CEO cash pay incentives, while the effect of financial synergies is tempered by institutional ownership. Following a set-theoretical approach, we also reveal alternative causal patterns of synergistic incentives and governance ‘bundles’, which combine into high and low premiums. We conclude that an acquirer’s inclination to pay a premium for expected synergies pursuant to a merger should be interpreted within a multi-theoretical framework which refers to agency, monitoring and CEO power of top executive compensation theories.