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Ex Ante Effects of Ex Post Managerial Ownership

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  • Cornelli, Francesca
  • Li, David Daokui
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    Abstract

    This paper highlights the trade-off between the need to restructure a company and the need to provide managers with appropriate incentives to run it after the restructuring. In order to provide incentives, it is optimal to let managers acquire equity in the firm. However, the expectations to be able to buy shares in the future may create ex-ante incentives to delay restructuring. This effect is particularly important for events where managers can acquire a substantial number of shares, such as privatizations or MBOs. In equilibrium, the shares are not underpriced, but the delay in restructuring which took place in the period before reduces the value of the company. We report empirical evidence on MBOs and privatizations consistent with the model in this paper.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5821.

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    Date of creation: Sep 2006
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    Handle: RePEc:cpr:ceprdp:5821

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    Keywords: management buy-outs; managers incentives; privatizations;

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