| This dissertation consists of two essays on mergers and acquisitions. The first essay empirically models the determination of the transfer of control during the merger. Hypotheses underlying the model are driven by the factors that lead to which management takes the control in the combined firm as a result of the merger negotiation. The structure of the chief executive officer's (CEO) compensation, management performance, degree of information asymmetry, and CEO characteristics are examined for a sample of 298 firms that have participated in the mergers. Univariate analyses and logit estimates show that management performance, efficiency of asset management, and the degree of information asymmetry are positively and significantly related to the likelihood of a CEO's retention and the degree of his control in the combined firm. Severance payment through the change-in-control agreement provides the CEO with financial incentives to give up control. However, equity-based compensation provides more value to the control for CEO. When the CEO is also the chairman of the board, he is more likely to remain in and obtain more control in the combined firm.; The second essay investigates whether corporate control mechanisms discipline management who has made value-reducing acquisitions. The link between acquisition decisions and subsequent CEO turnover is empirically examined. Results from event studies show significant differences in the stock market reactions surrounding the acquisition announcement between the sample of acquirers with post-acquisition CEO turnovers and those without subsequent CEO turnovers. The average cumulative abnormal returns around the acquisition announcement day are significantly negative for those firms that replaced their CEO after an acquisition occurred. Logit regression analyses provide strong evidence of a negative association between the acquiring firm's abnormal stock market performance due to the acquisition announcement and the probability of disciplinary CEO departure. Those CEOs who have deviated from shareholders' value maximization are more likely to be disciplined through internal corporate governance mechanisms. However, for the firms that have cancelled an acquisition after observing a negative market reaction, their CEOs are less likely to be replaced subsequently. |
