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The Political Economy of Finance

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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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Bibliographic 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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Postal: I-80126 Napoli
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Web page: http://www.csef.it/
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Keywords: political economy; shareholder protection; corporate governance; bankruptcy law; credit market regulation; financial development; privatization;

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