Managerial Incentives for Takeovers |
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Authors: | Ramon,Faulí -Oller Massimo,Motta |
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Affiliation: | Department of Economics University of Alicante Campus de San Vicente E-03071 Alicante, Spain;Department of Economics Universitat Pompeu Fabra Balmes 132 E-08008 Barcelona, Spain |
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Abstract: | The paper studies managerial incentives in a model where managers choose product market strategies and make takeover decisions. The equilibrium contract includes an incentive to increase the firm's sales, under either quantity or price Competition. This result contrasts with previous findings in the literature, and hinges on the fact that when managers are more aggressive, rival firms earn lower profits and thus are willing to sell out at a lower price. However, as a side effect of such a contract, the manager might undertake unprofitable takeovers. |
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