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What motivates managers?: Evidence from organizational form changes

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  • Damodaran, Aswath
  • John, Kose
  • Liu, Crocker H.

Abstract

We formulate several testable hypotheses on managerial motivation and test our hypotheses by using a sample of 128 organizational form changes in the real estate industry. We find that firms that switch to a more restrictive (tighter) organizational structure have increases in stock value, and have higher managerial ownership of stocks and options. Firms moving to a less restrictive (looser) structure have larger wealth effects when the degree of monitoring is higher. Distressed firms (with higher creditor monitoring) moving into a looser organizational form have higher wealth effects than healthy firms. In fact, these wealth effects are decreasing in the level of free cash flow to a looser organizational form have high wealth effects when accompanied by managerial replacement than otherwise.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 12 (2005)
Issue (Month): 1 (December)
Pages: 1-26

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Handle: RePEc:eee:corfin:v:12:y:2005:i:1:p:1-26

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Web page: http://www.elsevier.com/locate/jcorpfin

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References

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Cited by:
  1. Aggarwal, Rajesh K. & Samwick, Andrew A., 2006. "Empire-builders and shirkers: Investment, firm performance, and managerial incentives," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 489-515, June.

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