Managers, Workers, and Corporate Control

Marco Pagano and Paolo Volpin

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: If management has high private benefits and owns a small equity stake, managers and workers are natural allies against a takeover threat. 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 a raider. 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 incumbent's equity stake, and decline after a takeover

Keywords: industrial relationships; private benefits; political economy; shareholder protection; corporate governance; employment protection; takeovers (search for similar items in EconPapers)
JEL-codes: G34 K22 K42 (search for similar items in EconPapers)
Date: 2001-12-01, Revised 2004-01-09
New Economics Papers: this item is included in nep-lab and nep-law
Note: Winner of the 2005 Egon Zehnder International Prize for the best paper in the ECGI Finance Working Paper series, and nominated for the 2005 Brattle Prize.
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Published in The Journal of Finance, Vol. 60, No. 2, April 2005, pages 841-868

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Related works:
Journal Article: Managers, Workers, and Corporate Control (2005)
Working Paper: Managers, Workers and Corporate Control (2002)
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