Managers, Workers, and Corporate Control

Volpin, Paolo F.; Pagano, Marco

doi:10.2139/ssrn.299923

Download This Paper

Open PDF in Browser

Add Paper to My Library

Managers, Workers, and Corporate Control

EFA 2002 Berlin Meetings Presented Paper; ECGI - Finance Working Paper No. 01/2002

40 Pages Posted: 11 Apr 2003

See all articles by Paolo F. Volpin

Paolo F. Volpin

Drexel University - Bennett S. LeBow College of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); City University London - Faculty of Finance

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: August 2002

Abstract

If the private benefits of control are high and management owns a small equity stake, managers and workers are natural allies. There are two forces at play. First, managers effectively transform employees into a "poison pill" by signing generous long-term labor contracts and thereby reducing the firm's attractiveness to a raider. Second, employees act as "white squires" for the incumbent managers, lobbying against hostile takeovers to protect the high wages enjoyed under incumbent management. Our model is consistent with available empirical findings, and yields new predictions as well.

Keywords: private benefits, employment protection, takeovers, ESOPs

JEL Classification: G34, K22, K42

Suggested Citation: Suggested Citation

Volpin, Paolo F. and Pagano, Marco, Managers, Workers, and Corporate Control (August 2002). EFA 2002 Berlin Meetings Presented Paper; ECGI - Finance Working Paper No. 01/2002, Available at SSRN: https://ssrn.com/abstract=299923 or http://dx.doi.org/10.2139/ssrn.299923