The Strategic Choice of Managers and Managerial Discretion

13 Pages Posted: 6 Dec 2003

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

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Abstract

Managerial discretion is likely to be beneficial to shareholders because of strategic cross-effects in an oligopoly. In certain circumstances, shareholders deliberately retain managerial discretion in equilibrium even when the reduction of managerial discretion is cost free. It is found that the positive effect of managerial discretion on profits can only be created by power-building (shirking) managers if quantity (price) competition prevails in the market. Consequently, the dominant strategy for the owners of a quantity- (price-) competing company is to employ a power-building (shirking) manager. The strategic effect of such a match between the type of manager and the form of competition exists for all managerial decisions as far as firms interact with each other.

Suggested Citation

Yin, Xiangkang, The Strategic Choice of Managers and Managerial Discretion. Australian Economic Papers, Vol. 42, pp. 373-385, December 2003. Available at SSRN: https://ssrn.com/abstract=461802

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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