Title

Management Turnover And Executive Compensation In Synergistic Takeovers

Keywords

Executive compensation; Management turnover; Synergistic takeover

Abstract

The purpose of this paper is to provide a model of management turnover and executive compensation for a synergistic takeover. I extend a principal-agent model to include a synergy factor. I argue that the choice of management structure - turnover or no-turnover - provides an opportunity for the shareholder to efficiently utilize three elements of the incentive contracts: effort, insurance (risk-reduction) and synergy. I explain high turnover rates after takeovers, especially in conglomerate mergers as compared to horizontal mergers. Also, my model is consistent with empirical evidence that there is a high rate of management turnover in friendly as well as hostile takeovers and thus complements the model of the disciplinary role of takeovers. I also discuss an optimal compensation structure in synergistic takeovers compatible with their corresponding organizational forms. © 2001 Board of Trustees of the University of Illinois.

Publication Date

6-1-2001

Publication Title

Quarterly Review of Economics and Finance

Volume

41

Issue

2

Number of Pages

223-238

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/S1062-9769(00)00070-3

Socpus ID

0035374104 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/0035374104

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