Shareholder-Value Maximization and Tacit Collusion

Giancarlo Spagnolo

No 235, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: This paper shows that as long as the stock market has perfect foresight, some dividends are distributed, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation making collusion supportable at any discount factor. The results hold with managerial contracts of any length.

Keywords: CEO compensation; tacit collusion; oligopoly; delegation; managerial incentives; ownership and control; corporate governance. (search for similar items in EconPapers)
JEL-codes: D43 G30 J33 L13 L21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1998-05-07, Revised 1998-11-29
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (3)

Forthcoming in RAND Journal of Economics.

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