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The Political Economy of Finance

Marco Pagano () and Paolo Volpin

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

Abstract: If the private benefits of control are high and management owns a small equity stake, managers and workers are natural allies. There are two forces at play. First, managers effectively transform employees into a “poison pill’’ by signing generous long-term labor contracts and thereby reducing the firm’s attractiveness to a raider. Second, employees act as “white squires’’ for the incumbent managers, lobbying against hostile takeovers to protect the high wages enjoyed under incumbent management. Our model is consistent with available empirical findings, and yields new predictions as well.

Keywords: political economy; shareholder protection; corporate governance; bankruptcy law; credit market regulation; financial development; privatization (search for similar items in EconPapers)
JEL-codes: G28 G38 K22 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law and nep-mfd
Date: 2001-12-01
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Published in Oxford Review of Economic Policy, Vol. 17, No. 4, 2001, pages 502-519

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Working Paper: The Political Economy of Finance (2002) Downloads
Journal Article: The Political Economy of Finance (2001)
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