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Agency versus Hold-up: On the Impact of Binding Say-on-Pay on Shareholder ValueAlexander F. WagnerUniversity of Zurich - Department of Banking and Finance; Harvard University; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI) Christoph WenkUniversity of Zurich - Department of Banking and Finance January 16, 2013 Swiss Finance Institute Research Paper No. 11-12 Abstract: A policy experiment in Switzerland sheds light on the hitherto theoretical concept that shareholders may prefer to have limits on their own power. The empirical evidence suggests a trade-off: On the one hand, the planned binding say-on-pay law provides shareholders with an enhanced ability to ensure alignment. On the other hand, it gives shareholders an ability to partially set pay ex post, which may distort ex ante managerial incentives for extra-contractual, firm-specific investments. Thus, shareholder power reduces agency costs, but accentuates hold-up problems. These findings inform the design of policy.
Number of Pages in PDF File: 52 Keywords: Say-on-pay, event study, corporate governance, executive compensation JEL Classification: G38, G34 working papers seriesDate posted: March 26, 2011 ; Last revised: January 25, 2013Suggested CitationContact Information
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