A Theory of the Optimal Cost Barrier to Corporate Takeovers
This paper characterizes financial and employment contracts in the presence of both worker moral hazard and the threat of opportunistic takeovers. Firms in which worker efforts or specific investments are of greater importance are shown to exhibit a greater degree of deferred compensation, supported by governance structures that allow managers to resist hostile takeovers more vigorously. This effect is most pronounced in firms where workers 'pay for their job' by accepting low wages early in their careers. Firms in which large deferred payments cannot be offset by low starting wages will offer less resistance to a hostile bidder. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 38 (1997)
Issue (Month): 3 (August)
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