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The Search for Corporate Control

70 Pages Posted: 14 Jul 2007 Last revised: 26 Aug 2015

Marc Martos-Vila

London Business School - Department of Finance; University of California, Los Angeles (UCLA) - Finance Area

Date Written: January 2010


This paper analyzes the market for corporate control and acquisitions by explicitly modeling a typical firm's choice whether to become a potential acquirer or target. I add synergistic motives to a multitask principal-agent framework with moral hazard between managers and shareholders. I argue that the terms of an M&A deal are determined not in isolation but in a market equilibrium context, therefore the merger transaction is embedded in a dynamic general-equilibrium search model. This framework links explicit and implicit incentives in a novel way. By modeling the choice explicitly I reconcile the evidence that in mergers target shareholders gain whereas acquirer shareholders seem to lose or gain nothing, yet most of the time they do not block the acquisition. Apart from that, it is shown that Golden Parachutes are an optimal form of compensation regarding merger-related incentives. The model also explains financial intermediation in the M&A market. I establish efficiency results and explain how merger waves might arise, in addition to other (testable) implications.

Keywords: Mergers and Acquisitions, Search and Matching Models, Moral Hazard, Multitask, Golden Parachute, Implicit Incentives, Abnormal Return, Synergy

JEL Classification: C78, D82, D83, G34, J33, G14, M52

Suggested Citation

Martos-Vila, Marc, The Search for Corporate Control (January 2010). Available at SSRN: or

Marc Martos-Vila (Contact Author)

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States

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