Three major motives have been suggested for takeovers: synergy, agency, and hubris. Existing empirical evidence is unable to clearly distinguish among these motives probably due to the simultaneous existence of all three in any sample of takeovers. This paper suggests a way of distinguishing among these competing hypotheses by looking at the correlation between target and total gains. It is argued that this correlation should be positive if synergy is the motive, negative if agency is the motive, and zero if hubris is the motive. The empirical results show that synergy is the primary motive in takeovers with positive total gains even though the evidence is consistent with the simultaneous existence of hubris in this sample. It is also found that agency is the primary motive in takeovers with negative total gains. Three major motives for takeovers have been advanced in the literature: the synergy motive, the agency motive, and hubris. The synergy motive suggests that takeovers occur because of economic gains that result by merging the resources of the two firms. The agency motive suggests that takeovers occur because they enhance the acquirer management's welfare at the expense of acquirer shareholders. The hubris hypothesis suggests that managers make mistakes in evaluating target firms, and engage in acquisitions even when there is no synergy. The existing empirical evidence has not been able to clearly distinguish among the different motives. For example, Bradley, Desai, and Kim (1988) argue that takeovers are value increasing transactions because total gains are positive in their sample of takeovers. However, the returns to acquiring firm stockholders are negative for about half the cases, and the average return is also negative, at least in the 1980s.1 Since synergy motive implies that acquisitions take place only if there are gains to acquirer shareholders, this finding suggests that hubris or agency