Abstract

http://ssrn.com/abstract=164447
 
 

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Is There a Discretion in Wage Setting? A Test Using Takeover Legislation


Marianne Bertrand


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Sendhil Mullainathan


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)


RAND Journal of Economics, Vol. 30, No. 3, 1999

Abstract:     
Anecdotal evidence suggests that uncontrolled managers let wages rise above competitive levels. To test this belief, we examine the wage impact of antitakeover legislation passed throughout the 1980s in many states. Since many view hostile takeovers as an important disciplining device, these laws, by reducing takeover threats, potentially raised managerial discretion. If uncontrolled managers pay higher wages, we expect wages to rise following these laws. Using firm-level data, we find that these laws raised annual wages by 1% to 2%, or about $500 per year. The findings are robust to a battery of specification checks and do not appear to be contaminated by the political economy of the laws or other sources of bias. These results challenge standard theories of wage determination that ignore the role of managerial preferences.

JEL Classification: J30, M12, G30

Accepted Paper Series


Not Available For Download

Date posted: October 14, 1999  

Suggested Citation

Bertrand, Marianne and Mullainathan, Sendhil, Is There a Discretion in Wage Setting? A Test Using Takeover Legislation. RAND Journal of Economics, Vol. 30, No. 3, 1999. Available at SSRN: http://ssrn.com/abstract=164447

Contact Information

Marianne Bertrand (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5943 (Phone)
HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-0341 (Phone)
617-876-2742 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Sendhil Mullainathan
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-2720 (Phone)
617-495-7730 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-1473 (Phone)
617-876-2742 (Fax)
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