We investigate the effect of Mg additive on the inhibition of Ag agglomeration in Ag contacts on p-GaN. The Mg-containing Ag contact shows low contact resistivity of 6.3 x 10(-5) Omega cm(2), high reflectance of 85.5% at 460 nm wavelength, and better thermal stability than the Ag contact after annealing in air ambient. Synchrotron radiation photoemission spectroscopy revealed that Mg atoms dissolving in the Ag contact reacted with oxygen atoms to form Mg oxides and increases the work function via decreasing the Schottky barrier height for hole injection. This leads to the inhibition of Ag atoms from lattice diffusion in the contact and to the suppression of the formation of Ag agglomeration, leading to enhanced light reflectance and thermal stability. (C) 2010 The Electrochemical Society. [DOI: 10.1149/1.3355164] All rights reserved.