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Is there Discretion in Wage Setting? A Test Using Takeover Legislation

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Author Info
Bertrand, M.
Mullainathan, S.

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Abstract

In this paper, we use states' passage of anti-takeover legislation as a source of such independent variation. Passed in the 1980s, these laws serioulsy limited takeovers of firms incorporated in legislating states. Since many view hostile takeovers as an important disciplining device, these laws potentially raised managerial discretion in affected firms. If uncontrolled managers pay higher wages, we expect wages to rise following these laws.

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Publisher Info
Paper provided by Princeton, Woodrow Wilson School - Public and International Affairs in its series Papers with number 203.

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Length: 37 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:priwpu:203

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Postal: PRINCETON UNIVERSITY, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON NEW- JERSEY 08542 U.S.A.
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Related research
Keywords: WAGES MANAGEMENT BUSINESS FINANCING

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation
G30 - Financial Economics - - Corporate Finance and Governance - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Richard A. Lester, 1952. "A range theory of wage differentials," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 5(4), pages 483-500, July.
  2. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351. [Downloadable!] (restricted)
  3. Timothy H. Hannan & Ferdinand Mavinga, 1980. "Expense Preference and Managerial Control: the Case of the Banking Firm," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 671-682, Autumn. [Downloadable!] (restricted)
  4. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring. [Downloadable!] (restricted)
  5. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
  6. Pound, John, 1987. "The Effects of Antitakeover Amendments on Takeover Activity: Some Direct Evidence," Journal of Law & Economics, University of Chicago Press, vol. 30(2), pages 353-67, October.
  7. Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages F672-94, November. [Downloadable!] (restricted)
    Other versions:
  8. Szewczyk, Samuel H. & Tsetsekos, George P., 1992. "State intervention in the market for corporate control : The case of Pennsylvania Senate Bill 1310," Journal of Financial Economics, Elsevier, vol. 31(1), pages 3-23. [Downloadable!] (restricted)
  9. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn. [Downloadable!] (restricted)
  10. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March. [Downloadable!] (restricted)
  11. Gokhale, Jagadeesh & Groshen, Erica L & Neumark, David, 1995. "Do Hostile Takeovers Reduce Extramarginal Wage Payments?," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 470-85, August. [Downloadable!] (restricted)
    Other versions:
  12. Bertrand, M. & Mullainathan, S., 1998. "Executive Compensation and Incentives: the Impact of Takeover Legislation," Papers 202, Princeton, Woodrow Wilson School - Public and International Affairs.
    Other versions:
  13. Karpoff, Jonathan M. & Malatesta, Paul H., 1989. "The wealth effects of second-generation state takeover legislation," Journal of Financial Economics, Elsevier, vol. 25(2), pages 291-322, December. [Downloadable!] (restricted)
  14. Andrei Shleifer & Lawrence H. Summers, 1989. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter. [Downloadable!] (restricted)
  16. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110. [Downloadable!] (restricted)
  18. William T. Dickens & Lawrence F. Katz, 1987. "Inter-Industry Wage Differences and Theories of Wage Determination," NBER Working Papers 2271, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Krueger, Alan B, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 75-101, February. [Downloadable!] (restricted)
  20. Rosett, Joshua G., 1990. "Do union wealth concessions explain takeover premiums? : The evidence on contract wages," Journal of Financial Economics, Elsevier, vol. 27(1), pages 263-282, September. [Downloadable!] (restricted)
  21. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October. [Downloadable!] (restricted)
  22. Edwards, Franklin R, 1977. "Managerial Objectives in Regulated Industries: Expense-Preference Behavior in Banking," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 147-62, February. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gary Charness & David Levine, 2003. "The Road to Hell: An Experimental Study of Intentions," University of California at Santa Barbara, Economics Working Paper Series 14-03, Department of Economics, UC Santa Barbara. [Downloadable!]
  2. Debarshi Nandy & Thomas Chemmanur, 2005. "How is Value Created in Spin-Offs? A Look Inside the Black Box," Working Papers 05-09, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  3. Marco Pagano & Paolo Volpin, 2001. "Managers, Workers, and Corporate Control," CSEF Working Papers 75, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
    Other versions:
  4. CASAMATTA, Catherine & GUEMBEL, Alexander, 2007. "Managerial Legacies, Entrenchment and Strategic Inertia," IDEI Working Papers 442, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  5. Cronqvist, Henrik & Heyman, Fredrik & Nilsson, Mattias & Svaleryd, Helena & Vlachos, Jonas, 2006. "Do Entrenched Manager Pay Their Workers More?," SIFR Research Report Series 47, Swedish Institute for Financial Research. [Downloadable!]
    Other versions:
  6. Bar-Gill, Oren & Barzuza, Michal & Bebchuk, Lucian Arye, 2002. "The Market for Corporate Law," CEPR Discussion Papers 3553, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Heyman, Fredrik & Svaleryd, Helena & Vlachos, Jonas, 2008. "Competition, Takeovers and Gender Discrimination," Working Paper Series 734, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  8. Bebchuk, Lucian Arye & Cohen, Alma, 2002. "Firms' Decisions on Where to Incorporate," CEPR Discussion Papers 3514, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Lucian Bebchuk & Alma Cohen, 2002. "Firms' Decisions Where to Incorporate," NBER Working Papers 9107, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, vol. 91(4), pages 814-831, September. [Downloadable!] (restricted)
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