Ex Ante Effects of Ex Post Managerial Ownership

Francesca Cornelli and David Li

No 5821, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper highlights the trade-off between the need to restructure a company and the need to provide managers with appropriate incentives to run it after the restructuring. In order to provide incentives, it is optimal to let managers acquire equity in the firm. However, the expectations to be able to buy shares in the future may create ex-ante incentives to delay restructuring. This effect is particularly important for events where managers can acquire a substantial number of shares, such as privatizations or MBOs. In equilibrium, the shares are not underpriced, but the delay in restructuring which took place in the period before reduces the value of the company. We report empirical evidence on MBOs and privatizations consistent with the model in this paper.

Keywords: Privatizations; managers incentives; management buy-outs (search for similar items in EconPapers)
JEL-codes: G34 J33 P34 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-cfn and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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