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Managerial incentives for mergers
Faulí, Ramon; Motta, Massimo
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We study managerial incentives in a model where managers take notonly product market but also takeover decisions. We show that the optimalcontract includes an incentive to increase the firm's sales, under bothquantity and price competition. This result is in contrast to the previousliterature and hinges on the fact that with a more aggressive manager rivalfirms earn lower profits and are willing to sell out at a lower price. \\However, as a side--effect of such a contract, the manager might take overmore rivals than would be profitable.
Finance and Accounting
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