Do CEOs in mergers trade power for premium? Evidence from "mergers of equals"

I analyze chief executive officer (CEO) incentives to negotiate shared control in the postmerger governance of the surviving firm. In order to do this, I study abnormal returns in a sample of "mergers of equals" (MOEs) transactions in which the two firms are approximately equal in postmerger board representation. These transactions are friendly mergers generally characterized by premerger negotiations that result in both greater shared control (board and management) and more equal sharing of merger gains between the two firms. On average, the value created measured by combined event returns is no different between MOEs and a matched sample of transactions. However, target shareholders capture less of the gains measured by event returns in transactions with shared governance. Moreover, target shareholders' share of the gains is systematically related to variables representing postmerger control rights, and shared governance is more likely in transactions in which CEOs face greater incentives for control. The evidence suggests that CEOs trade power for premium by negotiating shared control in the merged firm in exchange for lower shareholder premiums.