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| Author: | Choi, A. |
| Title: | Golden parachute as a compensation-shifting mechanism |
| Journal: | Journal of law, economics and organization
2004 : OCT, VOL. 19:2, p. 170-191 |
| Index terms: | Compensation Executive remuneration Mergers |
| Language: | eng |
| Abstract: | This paper demonstrates how a golden prachute can be used to improve the target shareholders' net return by partially shifting the managerial compensation burden to the buyer through a higher acquisition price. Consistent with the empirical observations, it is shown that 1) the golden parachute will be contingent on a change-of-control rather than solely on the manager's layoff, 2) the golden parachute will be promised early, for example, at the time of the managers' employment, not just in the face of a takeover or a merger, 3) the shareholders would want to extend its coverage to other employees and 4) the size of the parachute can be much larger than the manager's annual compensation. |
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