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The Strategic Choice Of Managers And Managerial Discretion

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  • Xiangkang Yin

Abstract

Managerial discretion is likely to be beneficial to shareholders because of strategic cross‐effects in an oligopoly. In certain circumstances, shareholders deliberately retain managerial discretion in equilibrium even when the reduction of managerial discretion is cost free. It is found that the positive effect of managerial discretion on profits can only be created by power‐building (shirking) managers if quantity (price) competition prevails in the market. Consequently, the dominant strategy for the owners of a quantity‐ (price‐) competing company is to employ a power‐building (shirking) manager. The strategic effect of such a match between the type of manager and the form of competition exists for all managerial decisions as far as firms interact with each other.

Suggested Citation

  • Xiangkang Yin, 2003. "The Strategic Choice Of Managers And Managerial Discretion," Australian Economic Papers, Wiley Blackwell, vol. 42(4), pages 373-385, December.
    • Handle: RePEc:bla:ausecp:v:42:y:2003:i:4:p:373-385
    DOI: 10.1111/1467-8454.00205
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    Cited by:

    1. Jiong Gong & Ping Jiang & Xiaochuan Xing, 2018. "Compensation Convexity without Utility Restriction," Australian Economic Papers, Wiley Blackwell, vol. 57(3), pages 238-249, September.

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