n15210SE Academic Article uri icon


  • Agency theory identifies managerial shirking as the cause for takeovers, while other explanations focus on low ability managers. This paper formalizes Jensen's free cash flow variant of agency theory by constructing a simple twoperiod game which captures the distinctive empirical implications of the two theories. Using data for petroleum firms following the oil price shock of 197980, we find that firms undergoing financial restructuring exhibited higher values of Tobin's q. Additionally, evidence of management turnover and workforce cuts emphasizes that takeovers appear primarily designed to address agency concerns. Copyright 1992, Wiley Blackwell. All rights reserved

published proceedings

  • Economic Inquiry

author list (cited authors)

  • GRIFFIN, J. M., & WIGGINS, S. N.

publication date

  • January 1, 1992 11:11 AM