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Managerial Incentives for Takeovers

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  • Ramon Fauli-Oller
  • Massimo Motta

Abstract

The paper studies managerial incentives in a model where managers choose product market strategies and make takeover decisions. The equilibrium contract includes an incentive to increase the firm's sales, under either quantity or price Competition. This result contrasts with previous findings in the literature, and hinges on the fact that when managers are more aggressive, rival firms earn lower profits and thus are willing to sell out at a lower price. However, as a side effect of such a contract, the manager might undertake unprofitable takeovers. Copyright 1996 The Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 5 (1996)
Issue (Month): 4 (December)
Pages: 497-514

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Handle: RePEc:bla:jemstr:v:5:y:1996:i:4:p:497-514

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Cited by:
  1. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2001. "Merger Profitability in Unionized Oligopoly," CEPR Discussion Papers 2738, C.E.P.R. Discussion Papers.
  2. Sven-Olof Fridolfsson & Johan Stennek, 2001. "Why Mergers Reduce Profits and Raise Share Prices: A Theory of Preemptive Mergers," CIG Working Papers FS IV 01-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  3. Bárcena Ruiz, Juan Carlos & Casado Izaga, Francisco Javier, 1999. "Should Owners of Firms Delegate Long-run Decisions?," BILTOKI 1999-11, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
  4. repec:fth:calaec:10-00 is not listed on IDEAS
  5. Javier M. López Cuñat, 2000. "Adverse Selection And Managerial Incentives," Working Papers. Serie AD 2000-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Krakel, Matthias & Sliwka, Dirk, 2006. "Strategic delegation and mergers in oligopolistic contests," Journal of Economics and Business, Elsevier, vol. 58(2), pages 119-136.
  7. Robert Ritz, 2005. "Strategic incentives for market share," Economics Series Working Papers 248, University of Oxford, Department of Economics.
  8. Kuipers, Jerome & Olaizola Ortega, María Norma, 2004. "Internal Organization of Firms and Cartel Formation," IKERLANAK 2004-15, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  9. Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Mergers In Oligopoly," Working Papers. Serie AD 1999-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Gürtler, Oliver & Kräkel, Matthias, 2006. "Mergers, Litigation and Efficiency," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 185, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  11. Barcena-Ruiz, Juan Carlos & Casado-Izaga, F. Javier, 2005. "Should shareholders delegate location decisions?," Research in Economics, Elsevier, vol. 59(3), pages 209-222, September.
  12. Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Endogenous Mergers In Oligopoly," Working Papers. Serie AD 1999-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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