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Enjoying the Quiet Life? Corporate Governance and Managerial Preferences

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  • Bertrand, Marianne
  • Mullainathan, Sendhil

Abstract

Much of our understanding of corporations builds on the idea that managers, when they are not closely monitored, will pursue goals that are not in shareholders’ interests. But what goals would managers pursue? This paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences. We use plantâ€level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws. We find that when managers are insulated from takeovers, worker wages (especially those of whiteâ€collar workers) rise. The destruction of old plants falls, but the creation of new plants also falls. Finally, overall productivity and profitability decline in response to these laws. Our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life.

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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3429713.

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Date of creation: 2003
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Publication status: Published in Journal of Political Economy -Chicago-
Handle: RePEc:hrv:faseco:3429713

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  1. 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.
  2. Frank R. Lichtenberg & Donald Siegel, 1991. "The Effects of Leveraged Buyouts on Productivity and Related Aspects of Firm Behavior," NBER Working Papers 3022, National Bureau of Economic Research, Inc.
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