Synergies and Internal Agency Conflicts: The Double-Edged Sword of Mergers

CEO Replacement Under Private Information

“…As we will argue below, the first inequality ensures that eliciting high effort is optimal. 8 Since the first inequality also implies that E[s | θ] > V , it follows from strict monotonicity and continuity of E[s | θ] that there exists a unique interior cutoff 5 See, e.g., Bagwell and Zechner (1993), Edlin and Stiglitz (1995), and Fulghieri and Hodrick (2006). 6 There is no need to make distributional assumptions about V .…”

Mergers, Spinoffs, and Employee Incentives

“…We assume that the active participation of the employee who initially generated the innovation is necessary in the second stage for its development into a final product. 6 Although our initial model assumes that the only necessary 5 Innovation can be broadly interpreted as any new idea or new product which improves firm profitability. 6 This assumption implies that if an employee with a successful innovation leaves his firm at the end of the first stage, the firm cannot implement the innovation without the original employee.…”

“…6 Although our initial model assumes that the only necessary 5 Innovation can be broadly interpreted as any new idea or new product which improves firm profitability. 6 This assumption implies that if an employee with a successful innovation leaves his firm at the end of the first stage, the firm cannot implement the innovation without the original employee. Similarly, if the employee leaves the firm, he cannot implement the innovation by himself but he must join another firm with the resources and capabilities necessary to implement the innovation.…”

“…Matouschek and Robert-Nicoud (2005) show that the location decision of firms depends on whether the firm or the employee invests in human capital, and whether human capital investment is industry-specific or firm-specific. In Almazan et al (2007), geographical proximity promotes the development of a competitive labor market, and firms prefer to cluster when employees pay 2 See, among others, Gertner, Scharfstein and Stein (1994), Scharfstein and Stein (2000), Fulghieri and Hodrick (2006). For a review of this literature, see Stein (2003).…”

Competitive Strategy and Performance in Mexico, Peru, and the United States

“…Recently, organizational economics-integrating perspectives such as agency theory, incentives, transaction cost theory, and property rights theory-has experienced a resurgence in the literature (Foss & Foss, 2005;Fulghieri & Hodrick, 2006;Gibbons, 2003;Whinston, 2003). In many respects, this perspective represents an extension of the resource-based perspective.…”