Do parachutes discipline managers? An analysis of takeover battles
AbstractWe analyze a Tullock-type takeover contest between two CEOs. To deter wasteful influence activities in shareholder optimum, the parachute compensates the (potentially) foregone earnings of the contestant whose incentives to invest in such activities are strongest. Therefore, the parachute is “golden”, but must be calculated net of all influence and separation costs. Notably, this solution arises in equilibrium with uncoordinated shareholder decisions. Further, equilibrium severance pay does not depend on structures or levels of pre-merger manager compensations. Shareholders are always indifferent between dismissing either of the two managers.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 32 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/irle
Takeover battle; Contest model; Golden parachute;
Find related papers by JEL classification:
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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