Concentrating on Governance
57 Pages Posted: 17 Mar 2006 Last revised: 16 Dec 2010
Date Written: November 15, 2010
This paper develops a novel trade-off view of corporate governance. Using a simple model that integrates agency costs and bargaining benefits of management-friendly provisions, we identify the economic determinants of the resulting trade-offs for shareholder value. Consistent with the theory, our empirical analysis shows that provisions that allow managers to delay takeovers have a significant bargaining effect and a positive relation with shareholder value in concentrated industries. By contrast, non-delay provisions have an unambiguously negative relation with value, and more so in concentrated industries. Overall, our analysis suggests that there are governance trade-offs for shareholders and industry concentration is an important determinant of their severity.
Keywords: Corporate Governance, Industry Concentration, Antitakeover Provisions, Market for Corporate Control
JEL Classification: G30, G34
Suggested Citation: Suggested Citation