Agency versus Hold-up: Shareholder Rights and Shareholder Value
Swiss Finance Institute Research Paper No. 11-12
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 500/2017
62 Pages Posted: 26 Mar 2011 Last revised: 12 Oct 2021
Date Written: October 6, 2021
Abstract
A set of policy experiments regarding binding votes on compensation in Switzerland sheds new light on the argument that shareholders may prefer to have limits on their own power. The empirical evidence suggests a trade-off: On the one hand, binding votes on compensation amounts enhance alignment of management interests with shareholders. On the other hand, when shareholders can (partially) set pay levels ex post, this may distort ex ante managerial incentives for extra-contractual, firm-specific investments. Thus, increased shareholder power reduces agency costs, but accentuates hold-up problems. These findings inform the design of policy.
Keywords: say-on-pay, event study, corporate governance, executive compensation
JEL Classification: G38, G34
Suggested Citation: Suggested Citation
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