Abstract
This paper examines the role of managerial self-interest in the merger market. It looks at factors influencing managers' merger decisions by analyzing managerial expense preference factors on cross-sectional data employing non-parametric statistical methods. The same factors are examined for acquiring, acquired, and merging firms, and control groups used in each case. The results support the authors' contention that managerial discretion is a significant motivating factor for mergers. The changes in expense preference factors indicate management decisions which provide conditions allowing management to indulge in management preferred expenditures, while reducing risk to their career. The authors then provide a moral/philosophic framework of ethical analysis for examining manager's merger decisions, using teleological and deontological theories. They conclude that merger decisions motivated or influenced by self-interest are unethical and, in the process, provide managers facing a merger decision with a framework for making an ethical decision.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Aihud, Y. and L. Baruch: 1981, ‘Risk Reduction as a Managerial Motive for Conglomerate Merges’,The Bell Journal of Economics, 605–17.
Barnea, A., A. Haugen and L. W. Senber: 1981, ‘Market Imperfections, Agency Problems and Capital Structure: A Review’,Financial Management 10, 7–22.
Benston, A.: 1965, ‘The Self Serving Management Hypothesis: Some Evidence’,Journal of Accounting and Economics, 67–84.
Bierman, H.: 1980, ‘A Neglected Tax Incentive for Merges’,Financial Management 14, 29–32.
Boyce, W. D. and L. C. Jensen: 1978,Moral Reasoning: A Psychological and Philosophical Integration (University of Nebraska Press).
De George, R.: 1986,Business Ethics, 2nd ed. (MacMillan, New York).
Dodd, P. R.: 1980, ‘Merger Proposals, Management Discretion and Stockholder Wealth’,Journal of Financial Economics 8(2), 105–37.
Edwards, F. R.: 1977, ‘Management Objectives in Regulated Industries: Expense Preference Behavior in Banking’,Journal of Political Economy, Feb.
Garvin, L.: 1953,A Modern Introduction to Ethics (Houghts Mifflin, Boston).
Hannan, T. and F. Haringa: 1980, ‘Expense Preference and Managerial Control: The Case of the Banking Firm’,The Bell Journal of Economics 2, 671–682.
Jensen, M. C. and W. H. Meckling: 1976, ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’,Journal of Financial Economics 3, 305–360.
Jensen, M. C. and C. W. Smith: 1985, ‘Stockholder, Manager, and Creditor Interests: Applications of Agency Theory’,Recent Advances in Corporate Finance (Richard D. Irwin, Homewood, Illinois).
Krant, I.: 1985, (1785),Foundation of the Metaphysics of Morals, L. W. Beck (trans.) (MacMillan, New York).
Kim, W. S. and E. H. Sorensen: 1986, ‘Evidence on the Impact of the Agency Costs of Debt and Corporate Debt Policy’,Journal of Financial and Quantitative Analysis 21, 131–144.
Lambert, R.: 1986, ‘Executive Effort and Selection of Risky Projects’,The Rand Journal of Economics 17, 77–88.
Larcker, D.: 1983, ‘The Association Between Performance Plan Adoption and Corporate Capital Investment’,Journal of Accounting and Economics 5, 3–30.
Lee, L. W.: 1977, ‘Co-insurance and Conglomerate Merge’,Journal of Finance, Dec., 1527–1538.
Lewellen, W.: 1971, ‘Apure Financial Rationale for the Conglomerate Merges’,Journal of Finance, May, 521–537.
Manne, G.: 1965, ‘Merges and the Market for Corporate Control’,Journal of Political Economy 73, 110–120.
Mayer, D. and C. W. Smith, Jr.: 1986, ‘Ownership Structure and Control: The Mutualization of Stock Life Insurance Companies’,Journal of Financial Economics 16, 73–98.
Mill, J. S.: 1957,Utilitarianism (The Liberal Arts Press, New York) (First Published, 1863).
Murphy, K.: 1985, ‘Corporate Performance and Management Exoneration: An Empirical Analysis’,Journal of Accounting and Economics 7, April, 11–42.
Rawls, J.: 1971,A Theory of Justice (Belknap Press of Harvard University Press, Cambridge, MA).
Siegel, S: 1956,Nonparametric Statistics for the Behavioral Sciences (McGraw Hill, New York).
Stirner, M.:The Ego and His Own, S. T. Byington (trans.) J. Caroll (ed.) revised.
Teale, A. E.: 1925,Kantian Ethics.
Zemedkun, W.: 1989, ‘Bank Merger Bids, Managerial Control and Value Maximization’,Akron Business and Economic Review 20(3), 64–79.
Zemedkun, W.: 1992, ‘Evidence on the Relationship Between Mergers and Agency Problems’,Business Journal, 1–5.
Author information
Authors and Affiliations
Additional information
Dr. Francis Achampong is a Professor of Business Law and Insurance at Norfolk State University, in Norfolk, Virginia. He is licensed to practice law in New York and Virginia. He has published in journals such as theJournal of Risk and Insurance, theInternational and Comparative Law Quarterly, Dickinson Law Review, and theAkron Law Review.
Dr. Wold Zemedkun is an Associate Professor of Finance at Norfolk State University, In Norfolk, Virginia. He has published in journals such as theJournal of Business Strategies, theAkron Business and Economic Review,, theJournal of Financial Education, and theAtlantic Economic Journal.
Rights and permissions
About this article
Cite this article
Achampong, F.K., Zemedkun, W. An empirical and ethical analysis of factors motivating managers' merger decisions. J Bus Ethics 14, 855–865 (1995). https://doi.org/10.1007/BF00872351
Issue Date:
DOI: https://doi.org/10.1007/BF00872351