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A Theory of the Optimal Cost Barrier to Corporate Takeovers

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  • Garvey, Gerald T
  • Gaston, Noel

Abstract

This paper characterizes financial and employment contracts in the presence of both worker moral hazard and the threat of opportunistic takeovers. Firms in which worker efforts or specific investments are of greater importance are shown to exhibit a greater degree of deferred compensation, supported by governance structures that allow managers to resist hostile takeovers more vigorously. This effect is most pronounced in firms where workers 'pay for their job' by accepting low wages early in their careers. Firms in which large deferred payments cannot be offset by low starting wages will offer less resistance to a hostile bidder. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 38 (1997)
Issue (Month): 3 (August)
Pages: 657-75

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Handle: RePEc:ier:iecrev:v:38:y:1997:i:3:p:657-75

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Cited by:
  1. Chemla, Gilles, 2004. "Takeovers and the dynamics of information flows," Economics Papers from University Paris Dauphine 123456789/6359, Paris Dauphine University.
  2. M. Pagano & P. F. Volpin, 2005. "Managers, Workers, and Corporate Control," Journal of Finance, American Finance Association, vol. 60(2), pages 841-868, 04.
  3. Chemla, Gilles, 2005. "Hold-up, stakeholders and takeover threats," Journal of Financial Intermediation, Elsevier, vol. 14(3), pages 376-397, July.
  4. Abe, Naohito & Gaston, Noel & Kubo, Katsuyuki, 2005. "Executive pay in Japan: the role of bank-appointed monitors and the Main Bank relationship," Japan and the World Economy, Elsevier, vol. 17(3), pages 371-394, August.
  5. Chemla, Gilles, 2005. "Hold-Up, Stakeholders and Takeover Threats," Economics Papers from University Paris Dauphine 123456789/4134, Paris Dauphine University.

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