Managers, Workers, and Corporate Control

Marco Pagano and Paolo Volpin

Journal of Finance, 2005, vol. 60, issue 2, 841-868

Abstract: If management has high private benefits and a small equity stake, managers and workers are natural allies against takeover threats. 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 raiders. 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 managerial equity stake, and decline after takeovers.

Date: 2005
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https://doi.org/10.1111/j.1540-6261.2005.00748.x

Related works:
Working Paper: Managers, Workers, and Corporate Control (2004)
Working Paper: Managers, Workers and Corporate Control (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:60:y:2005:i:2:p:841-868

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