What Motivates Managers? Evidence from Organizational Form Changes

Aswath Damodaran, Kose John and Crocker H. Liu

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

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.

Date: 1999-11-23

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Persistent link: http://EconPapers.repec.org/RePEc:fth:nystfi:99-079

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