Managerial Ownership with Rent-Seeking Employees

42 Pages Posted: 22 Mar 2007 Last revised: 3 Jan 2009

See all articles by Linus Wilson

Linus Wilson

University of Louisiana at Lafayette - College of Business Administration

Date Written: December 30, 2008

Abstract

The traditional agency problem advocates 100 percent share ownership when managers are risk-neutral, and managers either have enough wealth to buy the firm outright or have access to perfect capital markets. This paper says that delegation to the disinterested managers may sometimes explain the separation of ownership and control even before one considers diversification motives or credit market imperfections. High levels of CEO share ownership may induce rent-seeking employees to behave badly. Delegation to disinterested managers, with lower levels of share ownership, makes firms more valuable than retaining CEO-level agents that think like 100 percent owners.

Keywords: CEO compensation, contracts, corporate control, shareholders, rent-seeking, and unions

JEL Classification: D23, G34

Suggested Citation

Wilson, Linus, Managerial Ownership with Rent-Seeking Employees (December 30, 2008). Available at SSRN: https://ssrn.com/abstract=972134 or http://dx.doi.org/10.2139/ssrn.972134

Linus Wilson (Contact Author)

University of Louisiana at Lafayette - College of Business Administration ( email )

Department of Economics & Finance
214 Hebrard Blvd., Room 326
Lafayette, LA 70504-0200
United States
(337) 482-6209 (Phone)
(337) 482-6675 (Fax)

HOME PAGE: http://www.linuswilson.com

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