Managers, Workers and Corporate Control

38 Pages Posted: 7 Jan 2003

See all articles by Marco Pagano

Marco Pagano

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

Paolo F. Volpin

City University London - Faculty of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

If the private benefits of control are high and management owns a small equity stake, managers and workers are natural allies. Two forces are at play. First, managers can transform employees into a 'poison pill' through generous long-term labour contracts and thereby reduce the firm's attractiveness to a raider. Second, employees act as 'white squires' for the incumbent managers: to protect their high wages, they resist hostile takeovers, by refusing to sell their shares to the raider or by lobbying against the takeover. The model is consistent with available empirical findings, and also yields new predictions.

Keywords: Corporate control, private benefits, takeovers, ESOPs, employment protection

JEL Classification: G34, K22, K42

Suggested Citation

Pagano, Marco and Volpin, Paolo F., Managers, Workers and Corporate Control (November 2002). CEPR Discussion Paper No. 3649. Available at SSRN: https://ssrn.com/abstract=365020

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http:/www.ecgi.org

Paolo F. Volpin

City University London - Faculty of Finance ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http:/www.ecgi.org

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