Agency versus Hold-up: On the Impact of Binding Say-on-Pay on Shareholder Value
Alexander F. Wagner
University of Zurich - Department of Banking and Finance; Harvard University; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
University of Zurich - Department of Banking and Finance
January 16, 2013
Swiss Finance Institute Research Paper No. 11-12
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, G34working papers series
Date posted: March 26, 2011 ; Last revised: January 25, 2013
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