AGENCY PROBLEMS AS ANTECEDENTS TO UNRELATED MERGERS AND DIVERSIFICATION - AMIHUD AND LEV RECONSIDERED

Amihud and Lev (1981) are widely cited as providing evidence that mana gers, unless closely monitored by large black shareholders, will attem pt to reduce their employment risk through unrelated mergers and diver sification. These corporate strategies, however, may not be in shareho lders' interests. Reconsidering the agency assumptions underlying Amih ud and Lev's study and the methodology they used we develop hypotheses regarding the association between ownership structure, board vigilanc e, corporate strategy and corporate performance from management theory and test them using Amihud and Lev's data from the 1960s and new data from the 1980s. Neither study supports the conclusions of Amihud and Lev, nor the agency theory belief that monitoring efforts by principal s affect the strategic behaviors of agents or the performance of firms that they manage. (C) 1998 John Wiley & Sons, Ltd.