SSE/EFI Working Paper Series in Economics and Finance
Shareholder-Value Maximization and Tacit Collusion
Abstract: This paper shows that as long as the stock market has
perfect foresight, some dividends are distributed, and incentives are paid
more than once or are deferred, stock-related compensation packages are
strong incentives for managers to support tacit collusive agreements in
repeated oligopolies. The stock market anticipates the losses from
punishment phases and discounts them on stock prices, reducing managers'
short-run gains from any deviation. When deferred, stock-related incentives
may remove all managers' short-run gains from deviation making collusion
supportable at any discount factor. The results hold with managerial
contracts of any length.
Keywords: CEO compensation; tacit collusion; oligopoly; delegation; managerial incentives; ownership and control; corporate governance.; (follow links to similar papers)
JEL-Codes: D43; G30; J33; L13; L21; (follow links to similar papers)
35 pages, May 7, 1998, Revised November 29, 1998
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- This paper is forthcoming as:
Spagnolo, Giancarlo, 'Shareholder-Related Compensation and Product-Market Competition', RAND Journal of Economics.
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