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Managerial Incentives for Mergers

Author

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  • Faulí-Oller, Ramon
  • Motta, Massimo

Abstract

We study managerial incentives in a model where managers take not only product market but also take-over decisions. We show that the optimal contract includes an incentive to increase the firm's sales, under both quantity and price competition. This result contrasts with the previous literature, and hinges on the fact that with a more aggressive manager rival firms earn lower profits and are willing to sell out at a lower price. As a side-effect of such a contract, however, the manager might take more rivals over than it would be profitable.

Suggested Citation

  • Faulí-Oller, Ramon & Motta, Massimo, 1996. "Managerial Incentives for Mergers," CEPR Discussion Papers 1325, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1325
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    Keywords

    Incentives; Merger Profitability; Take-overs;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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