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

63 Pages Posted: 26 Mar 2011 Last revised: 13 May 2019

See all articles by Alexander F. Wagner

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 12, 2019

Abstract

A set of policy experiments regarding binding votes on compensation 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: On the one hand, binding votes on compensation amounts provide shareholders with an enhanced ability to ensure alignment. 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

Wagner, Alexander F. and Wenk, Christoph, Agency versus Hold-up: Benefits and Costs of Shareholder Rights (April 12, 2019). 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 )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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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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