Ordinary Shares and Managers |
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Authors: | Roland Strausz |
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Institution: | (1) FU Berlin, Boltzmannstr. 20, 14195 Berlin, Germany |
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Abstract: | We argue that ordinary shares undermine any inherent commitment of its holders to resist renegotiating away ex post inefficiencies.
Yet, in a dynamic adverse selection problem, such ex post inefficiencies are optimal from an ex ante point of view. We show
that shareholders may use a manager in combination with a golden parachute (managerial severance payments) as a commitment
device not to renegotiate ex post. |
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Keywords: | corporate governance severance payments renegotiation limited commitment |
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