Post merger profitability analysis of shareholders. Evidence from ...

strategy that would lead to the revaluation of the company, while
according to the latter the merging activity may involve the
distribution of new information or lead the market to judge that the
bidders have superior information. The market may then revalue
previously “undervalued” shares of the bidder company
automatically after the announcement of merger activities. In
theory, information that the “target company is undervalued”,
becomes one of the motives for bidder to be engaged in merger or
acquisitions activities.
Agency Problem Theory
Managers are the agents of shareholders, and because both parties
are self-interested, there are serious conflicts between them over
the choice of the best corporate strategy. Agency costs are the total
costs that arise in such arrangements and they consist of the costs
of monitoring managerial behaviour and the efficiency losses that
are occurred because the conflicts of interest can never be resolved
perfectly (Jensen, 1986). According to Jensen and Meckling (1976),
an agency problem arises when managers own only a small fraction
of the ownership shares of the firm. This limited ownership may
cause managers to work less vigorously than otherwise, to increase
expenditures by purchasing luxurious offices, company cars etc. or
to make decisions that are opposed to the objectives of
shareholders’ wealth maximisation.
The agency problem theory of mergers has two aspects. On one
hand the threat of takeover may mitigate the agency problem by
substituting for the need of individual shareholders to monitor the
managers. Manne (1965) emphasized the market for corporate
control and viewed mergers as a threat of takeover if a firm’s
management bummed in performance either because of inefficiency
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