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Abstract

The aim of this paper is to analyze how employees may affect firm's corporate governance. In particular, we analyze a shareholder-manager relationship through a principal-agent framework. The manager is the agent in charge of taking decisions for firm's success. Yet, when deciding, the manager takes into account employees' preferences, i.e. the manager wants to enjoy a "quiet life". Our result highlight that having a quiet-life manager is not necessarily linked to destroy value, as suggested in recent research. It might even recover part of the efficient decisions (at a cost borne by the shareholder).

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File URL: http://www.upo.es/serv/bib/wps/econ0719.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 07.19.

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Length: 25 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:pab:wpaper:07.19

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Related research

Keywords: Quiet-life bias; Corporate Governance; Moral Hazard;

Find related papers by JEL classification:

• L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
• M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
• D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

This paper has been announced in the following NEP Reports:

• NEP-ALL-2007-12-08 (All new papers)
• NEP-BEC-2007-12-08 (Business Economics)
• NEP-PPM-2007-12-08 (Project, Program & Portfolio Management)

References

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1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
   
   • Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, vol. 119(4), pages 1339-1382, November.
2. Pagano, Marco & Volpin, Paolo, 2002. "Managers, Workers and Corporate Control," CEPR Discussion Papers 3649, C.E.P.R. Discussion Papers.
   
   • 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. Enrico C. Perotti & Ernst-Ludwig von Thadden, 2006. "The Political Economy of Corporate Control and Labor Rents," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 145-174, February.
4. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
5. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
   
   • Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
   • Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
6. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
   
   • Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
   • Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
7. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
   
   • Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
   • Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
8. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
   
   • Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
9. Aoki, Masahiko, 1990. "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 1-27, March.
10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.

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