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

Wagner, Alexander F.; Wenk, Christoph

doi:10.2139/ssrn.1793089

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

Swiss Finance Institute Research Paper No. 11-12

European Corporate Governance Institute (ECGI) - Finance Working Paper No. 500/2017

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: 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