Shareholder-Value Maximization and Tacit Collusion
AbstractThis paper shows that as long as the stock market has perfect foresight, some dividends are distributed, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation making collusion supportable at any discount factor. The results hold with managerial contracts of any length.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 235.
Length: 35 pages
Date of creation: 07 May 1998
Date of revision: 11 Nov 1998
Publication status: Forthcoming in RAND Journal of Economics.
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CEO compensation; tacit collusion; oligopoly; delegation; managerial incentives; ownership and control; corporate governance.;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
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- Ritzberger, Klaus & Shorish, Jamsheed, 2002. "Cross-Ownership Among Firms: Some Determinants of the Separation of Ownership from Control," Economics Series 113, Institute for Advanced Studies.
- Spagnolo, Giancarlo, 2004.
"Managerial Incentives and Collusive Behaviour,"
CEPR Discussion Papers
4506, C.E.P.R. Discussion Papers.
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