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The Political Economy of Finance

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Author Info
Marco Pagano () (CSEF, Università di Salerno, and CEPR)
Paolo Volpin (London Business School)

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Abstract

If the private benefits of control are high and management owns a small equity stake, managers and workers are natural allies. There are two forces at play. First, managers effectively transform employees into a “poison pill’’ by signing generous long-term labor contracts and thereby reducing the firm’s attractiveness to a raider. Second, employees act as “white squires’’ for the incumbent managers, lobbying against hostile takeovers to protect the high wages enjoyed under incumbent management. Our model is consistent with available empirical findings, and yields new predictions as well.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 76.

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Date of creation: 01 Dec 2001
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Publication status: Published in Oxford Review of Economic Policy, Vol. 17, No. 4, 2001, pages 502-519
Handle: RePEc:sef:csefwp:76

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Related research
Keywords: political economy; shareholder protection; corporate governance; bankruptcy law; credit market regulation; financial development; privatization;

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Find related papers by JEL classification:
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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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.:
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  29. Mark J. Roe, 1997. "The Political Roots Of American Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 8-22. [Downloadable!] (restricted)
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