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Managerial Incentives for Takeovers

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Author Info
Ramon Fauli-Oller
Massimo Motta

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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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Article provided by Blackwell Publishing 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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  1. Oliver Gürtler & Matthias Kräkel, 2006. "Mergers, Litigation and Efficiency," Discussion Papers 185, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  2. Robert Ritz, 2005. "Strategic incentives for market share," Economics Series Working Papers 248, University of Oxford, Department of Economics. [Downloadable!]
  3. F. Javier Casado-Izaga & Juan Carlos Barcena-Ruiz, 1999. "Should Owners of Firms Delegate Long-run Decisions?," BILTOKI 199911, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística). [Downloadable!]
  4. Kjell Erik Lommerud & Odd Rune Straume & Lars Sorgard, . "Merger Profitability in Unionized Oligopoly," University of California at Santa Barbara, Economics Working Paper Series 10-00, Department of Economics, UC Santa Barbara. [Downloadable!]
    Other versions:
  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). [Downloadable!]
  6. Inês CABRAL, 2002. "A Herding Approach to Merger Waves," Economics Working Papers ECO2002/26, European University Institute. [Downloadable!]
  7. 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). [Downloadable!]
    Other versions:
  8. 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). [Downloadable!]
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