Agency versus Hold-up: Benefits and Costs of Shareholder Rights

59 Pages Posted: 26 Mar 2011 Last revised: 7 May 2018

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Christoph Wenk

University of Zurich - Department of Banking and Finance

Date Written: April 15, 2018

Abstract

A set of policy experiments regarding binding say-on-pay in Switzerland sheds light on the hitherto mostly theoretical argument that shareholders may prefer to have limits on their own power. The empirical evidence suggests a trade-off: Binding say-on-pay provides shareholders with an enhanced ability to ensure alignment; but when shareholders can (partially) set pay ex post, this may distort ex ante managerial incentives for extra-contractual, firm-specific investments. These findings inform the design of policy. The direct-democratic process by which say-on-pay was introduced in Switzerland also highlights the conflicts between society and shareholders when it comes to executive compensation.

Keywords: Say-on-pay, event study, corporate governance, executive compensation

JEL Classification: G38, G34

Suggested Citation

Wagner, Alexander F. and Wenk, Christoph, Agency versus Hold-up: Benefits and Costs of Shareholder Rights (April 15, 2018). Swiss Finance Institute Research Paper No. 11-12; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 500/2017. Available at SSRN: https://ssrn.com/abstract=1793089 or http://dx.doi.org/10.2139/ssrn.1793089

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

Christoph Wenk

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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