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What motivates managers?: Evidence from organizational form changes

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  • Damodaran, Aswath
  • John, Kose
  • Liu, Crocker H.

Abstract

We formulate several testable hypotheses on managerial motivation and test our hypotheses by using a sample of 128 organizational form changes in the real estate industry. We find that firms that switch to a more restrictive (tighter) organizational structure have increases in stock value, and have higher managerial ownership of stocks and options. Firms moving to a less restrictive (looser) structure have larger wealth effects when the degree of monitoring is higher. Distressed firms (with higher creditor monitoring) moving into a looser organizational form have higher wealth effects than healthy firms. In fact, these wealth effects are decreasing in the level of free cash flow to a looser organizational form have high wealth effects when accompanied by managerial replacement than otherwise.
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  • Damodaran, Aswath & John, Kose & Liu, Crocker H., 2005. "What motivates managers?: Evidence from organizational form changes," Journal of Corporate Finance, Elsevier, vol. 12(1), pages 1-26, December.
    • Handle: RePEc:eee:corfin:v:12:y:2005:i:1:p:1-26
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    Cited by:

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    2. Aggarwal, Rajesh K. & Samwick, Andrew A., 2006. "Empire-builders and shirkers: Investment, firm performance, and managerial incentives," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 489-515, June.
    3. Iwasaki, Ichiro & 岩﨑, 一郎 & イワサキ, イチロウ, 2013. "Economics of Corporate Form: Why Do Russian Firms Prefer to Be Closed Companies?," RRC Working Paper Series 3, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
    4. Song, Qian & Holland, Kevin, 2023. "The quality of tax accounting for financial reporting purposes: International evidence from the United Kingdom," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 52(C).

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