Managers, Workers, and Corporate Control
If management has high private benefits and owns a small equity stake, managers and workers are natural allies against a takeover threat. Two forces are at play. First, managers can transform employees into a "shark repellent" through long-term labor contracts and thereby reduce the firm's attractiveness to a raider. Second, employees can act as ``white squires''\ for the incumbent managers: to protect their high wages, they resist hostile takeovers, by refusing to sell their shares to the raider or by lobbying against the takeover. The model predicts that wages are inversely correlated with the incumbent's equity stake, and decline after a takeover
|Date of creation:||01 Dec 2001|
|Date of revision:||09 Jan 2004|
|Publication status:||Published in The Journal of Finance, Vol. 60, No. 2, April 2005, pages 841-868|
|Note:||Winner of the 2005 Egon Zehnder International Prize for the best paper in the ECGI Finance Working Paper series, and nominated for the 2005 Brattle Prize.|
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