The Choice of Organizational Form: The Case of Post-Merger Managerial Incentive Structure

Volume 22 Number 4

Financial Management, 1993, vol. 22, issue 4

Abstract: It has been argued in previous research that organizational form is an optimal response to agency problems and that managerial compensation and organizational form are closely tied. Further, the incentive structure (i.e., managerial compensation and organizational form) of an organization should respond quickly to changes in the economic environment in order to provide appropriate managerial incentives. It is postulated in this paper that a takeover is initiated due to some synergy gain, and that upon the takeover, the resources of the target firm are transferred to the shareholders of the acquiring firm, represented by the board of directors, which determines an efficient compensation and managerial organization to reduce agency problems within the new organization.

Date: 1993
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