How Does Equity Structure Impact M&A Decision? a Model Based on Private Benefits

Abstract

This paper focus on the private benefit of large shareholder’s control right within the framework of Agency Theory 2 and construct a model which can illustrate how M&A decision can be impacted by acquirer’s equity structure. The model internalizes large shareholder’s private benefit as a function of the shareholding ratio and specifies the mechanism through which large shareholder’s shareholding ratio and ownership concentration impact the M&A decision. This paper provides theoretical foundation for those empirical literatures which analyze the M&As from the perspective of Agency Theory 2.