Academic Theories Assignment Help Managerialism Theory of Merger: According to this theory of motives, incentives to increase the size of corporations result in the need of mergers. In other words, managers pursue mergers to increase the organizational size rather than maximizing the wealth of their shareholders.

Free Cash Flow theory of merger: According to this theory of motives, management invests in projects that have negative NPV in order to develop corporation. In other words, the reason behind investing into these non-value adding projects in the form of mergers is the personal interest of managers to either get higher salary or make a poor investment on the expense of shareholder’s wealth or dividends.

Managerial entrenchment theory: According to this theory, management invests into non-value adding mergers to become indispensable to the organization. In other words, it can be argued that to become an essential and important part of the organization, management adopts strategies for mergers.

Hubris Hypothesis of Corporate Takeovers: As per this theory for motives, the management of acquiring firm may overpay to the target company and overestimate their skills and capabilities to run the company efficiently (Graham, Smart & Megginson, 2009). In other words, due to hypothetical beliefs, the managers take decisions of investing in mergers that are non-value adding to the organizational business in terms of returns. So, it can be argued that all these academic theories effectively explain the motives induced by the agency problem.

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