BROKERING MERGERS - AN AGENCY THEORY PERSPECTIVE ON THE ROLE OF REPRESENTATIVES

Agency theory suggests a conflict of interest in the relationship betw een investment bankers and the firms they represent during merger nego tiations. We examined this proposition by scrutinizing the association between the compensation bankers earned and the premiums paid in merg ers. Results show a positive relationship between premium and compensa tion for investment bankers of both target and bidder firms. This rela tionship indicates alignment between the goals of the targets and thei r representatives but suggests misalignment, and hence conflict of int erest, in the case of bidders.