Is there Discretion in Wage Setting? A Test Using Takeover Legislation
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October, 1998
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Studies identifying effects of antitakeover statutes on firms largely focused on data from an earlier period during most of which such statutes did plausibly matter because incumbents did not yet have the power to maintain poison pills indefinitely.
“It is worth noting that studies identifying some effects of antitakeover statutes on firms largely focused on data from an earlier period during most of which such statutes did plausibly matter because incumbents did not yet have the power to maintain poison pills indefinitely”
From What Matters in Corporate Governance? (2009) · cites this paper as Bertrand and Mullainathan (1999)
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“Following Bertrand and Mullainathan (2003), we address this issue by replacing the BC dummy in equation (2) with four dummies: BC Y ear(−1), BC Y ear(0), BC Y ear(1), and BC Y ear(2+), where BC Y ear(−1) is a dummy that equals one if the firm is incorporated in a state that will pass a BC law in one year from now, BC…”
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“Bertrand and Mullainathan (1999),e.g.provide evidence that managers have apreference for paying high wages.”
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“For instance, Bertrand and Mullainathan (2003) randomly sampled 200 firms from their data set and manually checked how many of them had changed their state of incorporation; only three changes were found—all to Delaware and all several years prior to passage of their respective states’ BC laws.”
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“Consistent with this, Bertrand and Mullainathan (1999a) show that bigger firms increase wages more in response to the takeover protection afforded by the second generation anti-takeovers laws.”
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“Thus, there is compelling evidence that external takeover threats play a major role in executive compensation design, and this may help explain recent empirical findings by Bertrand and Mullainathan (1999), that compensation levels increase following the passage of antitakeover legislation.”
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“Our paper is most closely related to the recent work by Bertrand and Mullainathan (1999, 2003), who show that there was a significantly larger increase in the wage bill for firms incorporated in states that passed antitakeover laws in the U.S. in the 1980s than for a control group.3 Our evidence…”
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ResultWithin-Firm Pay InequalityPreprint
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“…used to discipline managers (Schneper & Guillen, 2004), studies have revealed that when freed from takeover pressures, executives extract higher pay for their workers (Bertrand & Mullainathan, 1999, 2003) and pursue stakeholder-friendly practices such as community development (Kacperczyk, 2009).”
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BackgroundInfluentialDiscipline or Disruption? Stakeholder Relationships and the Effect of Takeover Threat
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“Romano (1987), Bertrand and Mullainathan (2003), and Karpoff and Wittry (2014) mention that a small number of large”
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“For example, Bertrand and Mullainathan (1999, 2003) find that strong antitakeover provisions lead to higher wages because of less threat that management will be removed by shareholders.”
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Takeover protection and stock price crash risk: Evidence from state antitakeover laws
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“Research has found that managers with greater discretion extract higher pay for themselves and their workers (Bertrand and Mullainathan 1999) and are more apt to consider the interests of nonshareholding stakeholders (Kacperczyk 2009).”
BackgroundResultAntitakeover Provisions and Shareholder Wealth: A Survey of the Literature
Straska, M., & Waller, H. (2013) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109014000532 · Cited by 65 · see citing works
“Bertrand and Mullainathan (1999) BCL 9305 firm-years (1976-1995) for 877 firms Average wage Wages increase more in firms that are incorporated in the states passing BCL Antitakeover laws increased managerial discretion in wage setting.”
Managerial Duties and Managerial Biases
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“…owners, collective labor action laws, in effect, shield against disciplining takeovers (Rauh 2006) and allow employees to extract higher wage levels (Bertrand and Mullainathan 1999), degrees of employment (Doucouliagos and Laroche 2009), and training in general skills (Acemoglu and Pischke 1999)…”
BackgroundCompetition, Takeovers, and Gender Discrimination
Heyman, F., Svaleryd, H. B., & Vlachos, J. (2013) · Industrial and Labor Relations Review · doi:10.1177/001979391306600205 · Cited by 61 · see citing works
“24 This set of robustness checks is similar to that undertaken by Bertrand and Mullainathan (1999).”
ResultGlobalization and Executive Compensation
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“[12] Bertrand, Marianne and Sendhil Mullainathan.”
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“A hypothesis based on optimal contracting predicts that CEO compensation should not increase – and may decrease – given the decline in the risk of takeover (Brickley and James, 1987; Hubbard and Palia, 1995; Bertrand and Mullainathan, 1999a).”
InfluentialContractual Corporate Governance
Goergen, M., & Renneboog, L. (2008) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2008.04.003 · Cited by 53 · see citing works
Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership
Kim, E. H., & Ouimet, P. (2008) · doi:10.2139/ssrn.1107974 · Cited by 52
“In the context of managerial pursuit of a “quiet life” in Bertrand and Mullainathan (1999, 2003), substantial employee control rights may exacerbate the managerial tendency to acquiesce to worker demands for higher wages.”
Private Equity, Layoffs, and Job Polarization
Olsson, M., & Tåg, J. (2017) · Journal of Labor Economics · doi:10.1086/690712 · Cited by 51 · see citing works
Copayments did not reduce medicaid enrollees' nonemergency use of emergency departments.
Mortensen, K. (2010) · Health Affairs · doi:10.1377/hlthaff.2009.0906 · Cited by 51 · see citing works
Managerial Legacies, Entrenchment and Strategic Inertia
Casamatta, C., & Guembel, A. (2010) · doi:10.2139/ssrn.681226 · Cited by 47
The impact of short-selling pressure on corporate employee relations
Brockman, P., Luo, J., & Xu, L. (2020) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2020.101677 · Cited by 46 · see citing works
Environmental Regulations and Corporate Cash HoldingsPreprint
Cao, Y., Chen, W.-R., Dong, Y., & Ma, D. (2024) · Social Science Research Network · doi:10.2139/ssrn.4771106 · Cited by 43 · see citing works
Ongsakul, V., Chatjuthamard, P., & Jiraporn, P. (2021) · Social Science Research Network · doi:10.1016/j.frl.2021.102212 · Cited by 43
Does protectionist anti-takeover legislation lead to managerial entrenchment?
Frattaroli, M. (2020) · Journal of Financial Economics · doi:10.2139/ssrn.3013077 · Cited by 43
Pe'er, A., & Gottschalg, O. F. (2011) · doi:10.1002/smj.934 · Cited by 43
Corporate Governance and Financial Peer Effects
Fairhurst, D. J., & Nam, Y. (2018) · Financial Management · doi:10.1111/fima.12240 · Cited by 51 · see citing works
Family Firms, Paternalism, and Labor RelationsPreprint
Mueller, H. M., & Philippon, T. (2006) · SSRN Electronic Journal · doi:10.2139/ssrn.945388 · Cited by 41 · see citing works
“4For empirical evidence consistent with this view, see Bertrand and Mullainathan (1999, 2003).”
BackgroundLabor mobility and antitakeover provisions
Dey, A., & White, J. T. (2021) · Journal of Accounting & Economics · doi:10.1016/j.jacceco.2021.101388 · Cited by 40 · see citing works
Próchniak, M. (2019) · Diversity of Patchwork Capitalism in Central and Eastern Europe · doi:10.4324/9780429056901-4 · Cited by 35
Does board gender diversity matter? Evidence from hostile takeover vulnerability
Chatjuthamard, P., Jiraporn, P., Lee, S. M., Uyar, A., & Kılıç, M. (2021) · Corporate Governance : The international journal of business in society · doi:10.1108/cg-08-2020-0353 · Cited by 34 · see citing works
Earnings quality effect of state antitakeover statutes
Zhao, Y., & Chen, K. H. (2009) · Journal of Accounting and Public Policy · doi:10.1016/j.jaccpubpol.2009.01.007 · Cited by 34 · see citing works
The Gender Gap Among Top Business Executives
Keller, W., Molina, T., & Olney, W. W. (2020) · Social Science Research Network · doi:10.3386/w28216 · Cited by 32 · see citing works
The impact of the Sarbanes-Oxley Act on corporate innovation
Gu, Y.-Q., & Zhang, L. (2017) · doi:10.1016/j.jeconbus.2016.12.002 · Cited by 32
Analysts' Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control
Mao, M., & Yu, Y.-X. (2015) · doi:10.1111/jbfa.12117 · Cited by 31
Cumulative Voting: Investor Protection or Antitakeover? Evidence from Family Firms in China
Chen, Y.-G., Li, W.-J., & Lin, K. (2015) · Corporate Governance An International Review · doi:10.1111/corg.12096 · Cited by 31 · see citing works
Employee Compensation in Entrepreneurial Companies
Bengtsson, O., & Hand, J. R. M. (2013) · doi:10.1111/jems.12014 · Cited by 31
“However, in sharp contrast to Bertrand and Mullainathan (1999, 2003) and Cronqvist et al. (2008) who show that workers are paid more when investors are less powerful, consistent with CEOs of mature firms having a taste for the “quiet life” that comes with less aggressive bargaining with workers, we…”
When Is Good News Bad and Vice Versa? The Fortune Rankings of America's Most Admired Companies
Cheng, Y.-M., Liu, B.-X., McConnell, J. J., & Rosenblum, A. (2017) · doi:10.2139/ssrn.2635230 · Cited by 29
“In particular, we rely on prior studies by Aggarwal and Samwick (1999), Bertrand and Mullainathan (1999), and Masulis et al. (2009) to guide our choice of control variables in the panel regression.”
Competitive pressure on the rate and scope of innovation
Younge, K., & Tong, T. W. (2018) · Journal of Economic Behavior and Organization · doi:10.1016/j.jebo.2018.03.026 · Cited by 28 · see citing works
Corporate Governance and Takeover Outcomes
Aktas, N., Croci, E., & Simsir, S. A. (2016) · Corporate Governance An International Review · doi:10.1111/corg.12116 · Cited by 28 · see citing works
“Consistent with the increase in managerial discretion after the passage of antitakeover laws, Bertrand and Mullainathan (1999) report that managerial compensation increased by 1–2 percent in affected firms. In a follow-up paper, Bertrand andMullainathan (2003) find that when managers are insulated from takeover pressu…”
InfluentialGovernance and firm value: The effect of a recession
Dah, M. A. (2016) · Research in International Business and Finance · doi:10.1016/j.ribaf.2016.01.013 · Cited by 28 · see citing works
Ongsakul, V., Chatjuthamard, P., Jiraporn, N., & Jiraporn, P. (2020) · Corporate Governance : The international journal of business in society · doi:10.1108/cg-03-2020-0106 · Cited by 27 · see citing works
When does competition mitigate agency problems?
Tang, Y.-H. (2018) · Journal of Corporate Finance · doi:10.2139/ssrn.1530113 · Cited by 27
Ex ante CEO severance pay and risk-taking in the financial services sector
Brown, K., Jha, R., & Pacharn, P. (2015) · doi:10.1016/j.jbankfin.2015.04.027 · Cited by 27
CEO Contract Horizon and InnovationPreprint
González-Uribe, J., & Groen-Xu, M. (2017) · SSRN Electronic Journal · doi:10.2139/ssrn.2633763 · Cited by 26 · see citing works
The Wealth Effects of Reducing Private Placement Resale Restrictions
Maynes, E., & Pandes, A. (2011) · European Financial Management · doi:10.1111/j.1468-036x.2010.00564.x · Cited by 26 · see citing works
“16 See Bertrand and Mullainathan (1999) for a practical illustration of the differences-in-differences methodology.”
Do Executive Compensation Contracts Maximize Firm Value? Evidence from a Quasi-Natural Experiment
Abudy, M., Amiram, D., Rozenbaum, O., & Shust, E. (2017) · doi:10.2139/ssrn.2993052 · Cited by 25
“, Bertrand and Mullainathan 1999, 2000, 2001). Thus, contracts are not chosen by boards to maximize shareholder value but instead by the executives themselves to maximize their rents. This perspective is espoused most prominently by Bebchuk and Fried (2004). Similar views on executive rent extraction in closely contro…”
BackgroundEx Ante Severance Agreements and Earnings Management
Brown, K. (2015) · Contemporary Accounting Research · doi:10.1111/1911-3846.12103 · Cited by 25 · see citing works
- Authors
- Bertrand, M., & Mullainathan, S.
- Affiliations
- National Bureau of Economic Research (US)
- Venue
- The RAND Journal of Economics
- Publisher
- Wiley
- Published
- 1999
- Volume
- 30
- Issue
- 3
- Pages
- 535
- ISSN
- 0741-6261 (ISSN-L)
- OpenAlex
- W2123968322
- Cited by
- 221
- References
- 51
- Citations by year
- 2026: 7 · 2025: 8 · 2024: 13 · 2023: 5 · 2022: 11 · 2021: 7 · 2020: 6 · 2019: 8 · 2018: 11 · 2017: 18 · 2016: 10 · 2015: 12 · 2014: 12 · 2013: 12 · 2012: 13
- FWCI
- 6.19
- Type
- journal article
- Language
- en
- Open access
- green
- hdl.handle.net
- Licence
- Locations
- The RAND Journal of Economics (publishedVersion)
- DSpace@MIT (Massachusetts Institute of Technology) (submittedVersion, cc-by-nc)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Public Administration › Labor Movements and Unions
- Keywords
- wage determination, takeover law, corporate acquisition, labor market regulation
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