Ansoff (1965) firstly argues that the motivation of M&A is to pursue synergy effect. The two parties of M&A can complement and coordinate with each other to improve corporate performance and create value. Thus, the performance of the integrated firm will be greater than the sum of the former two firms before M&A. Weston (1998) proposes that when the target firm is undervalued, the acquiring firm will be motivated to acquire that firm. In this way, the acquiring firm can acquire the target firm at a low price and the market will be stimulated to revalue the target firm and the share price will rise as well.
According to the market for corporate control theory (Manne, 1965), there is an active market for corporate control. When managers are performing badly, the company will tend to be taken over by other companies. Thus, the active market for corporate control can ensure the efficiency of managers and thus protect the interest of shareholders to some extent. These theories explain the motivations of M&A from the perspective of value creation.
There are also some theories explain the motivations of M&A from the perspective of value transformation, such as the agency theory. In many M&A cases, there is no value created at all or even the shareholders interests are harmed by M&A, which is named as “success paradox (Margaret et al., 2002)” or “post-merger performance puzzle (Agrawal et al., 1992)”. According to agency theory, the value is transformed from acquiring firms to other stockholders in M&As. Mueller (1969) proposes the managerism of conglomerate merger. The payments of managers are positively related to the firm size. Thus to increase their payments, managers will choose M&A as a growing mode.
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