Working paper
Takeover defenses, firm-specific skills and managerial entrenchment
- Abstract:
- We examine the shareholder wealth effects of takeover defenses by developing a model in which takeovers facilitate the implementation of technological innovations. In the rational expectations equilibrium of the model with explicit contracts, we show that takeover defenses are deployed to insure employees' firm-specific skills and that defenses dominate severance payments as an insurance mechanism because the latter distort the incentives of employees to exert effort. However, takeover defenses also result in managerial entrenchment. Managers of firms with weak boards choose takeover defenses which maximize their benefits of control, rather than shareholder wealth: golden parachutes serve to align managerial and shareholder preferences.
- Publication status:
- Published
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(Version of record, bin, 43.2KB, Terms of use)
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Authors
- Publisher:
- University of Oxford
- Series:
- Department of Economics Discussion Paper Series
- Publication date:
- 2005-10-01
- Paper number:
- 2005-FE-13
- Keywords:
- Pubs id:
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1144185
- Local pid:
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pubs:1144185
- Deposit date:
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2020-12-15
- ARK identifier:
Terms of use
- Copyright date:
- 2005
- Rights statement:
- Copyright 2005 The Author(s)
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