Enjoying the Quiet Life? Corporate Governance and Managerial Preferences
Abstract
Much of our understanding of corporations builds on the idea that managers, when they are not closely monitored, will pursue goals that are not in shareholders’ interests. But what goals would managers pursue? This paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences. We use plant‐level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws. We find that when managers are insulated from takeovers, worker wages (especially those of white‐collar workers) rise. The destruction of old plants falls, but the creation of new plants also falls. Finally, overall productivity and profitability decline in response to these laws. Our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life.
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The omission to explicitly demand or incentivize tougher competition between portfolio firms may allow managers to enjoy a quiet life and thus cause an equilibrium with reduced competition and sustained high margins.
“the omission to explicitly demand or incentivize tougher competition between portfolio firms may allow managers to enjoy a”
From Anticompetitive Effects of Common Ownership (2018) · cites this paper as Bertrand and Mullainathan, 2003
Cites
How Much Should We Trust Differences-in-Differences Estimates?
Bertrand, M., Duflo, E., & Mullainathan, S. (2004) · The Quarterly Journal of Economics · doi:10.1162/003355304772839588 · Cited by 10,641 · see citing works
Self-citationIs there Discretion in Wage Setting? A Test Using Takeover Legislation
Bertrand, M., & Mullainathan, S. (1999) · The RAND Journal of Economics · doi:10.2307/2556062 · Cited by 221 · see citing works
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What Matters in Corporate Governance?
Bebchuk, L., Cohen, A., & Ferrell, A. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn099 · Cited by 2,906 · see citing works
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The role of information and financial reporting in corporate governance and debt contracting
Armstrong, C. S., Guay, W. R., & Weber, J. P. (2010) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2010.10.001 · Cited by 1,494 · see citing works
Anticompetitive Effects of Common Ownership
AZAR, J., SCHMALZ, M. C., & TECU, I. (2018) · The Journal of Finance · doi:10.1111/jofi.12698 · Cited by 980 · see citing works
Growing out of trouble? Corporate responses to liability risk
Gormley, T. A., & Matsa, D. A. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhr011 · Cited by 690 · see citing works
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Can corporate social responsibility protect firm value during the COVID-19 pandemic?
Qiu, S. (., Jiang, J., Liu, X., Chen, M.-H., & Yuan, X. (2021) · International Journal of Hospitality Management · doi:10.1016/j.ijhm.2020.102759 · Cited by 321 · see citing works
Corporate Governance and Costs of Equity: Theory and Evidence
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- Authors
- Bertrand, M., & Mullainathan, S.
- Affiliations
- National Bureau of Economic Research (US)
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2003-10
- Volume
- 111
- Issue
- 5
- Pages
- 1043-1075
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2142831770
- Cited by
- 3,777
- References
- 2
- Citations by year
- 2026: 251 · 2025: 387 · 2024: 403 · 2023: 361 · 2022: 310 · 2021: 293 · 2020: 265 · 2019: 197 · 2018: 190 · 2017: 183 · 2016: 134 · 2015: 132 · 2014: 119 · 2013: 100 · 2012: 99
- FWCI
- 69.08
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Political Economy (publishedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Business, Management and Accounting › Strategy and Management › Political Influence and Corporate Strategies
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Keywords
- corporate governance, managerial preferences, state legislation, worker wages, white-collar workers, productivity, profitability, shareholder interests
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