Agency versus Hold-up: Benefits and Costs of Shareholder Rights

Agency versus Hold-up: Benefits and Costs of Shareholder Rights

Alexander Wagner, Christoph Wenk

Series number :

Serial Number: 
500/2017

Date posted :

March 26 2017

Last revised :

May 11 2019
SSRN Share

Keywords

  • Say-on-Pay • 
  • event study • 
  • Corporate governance • 
  • executive compensation

A set of policy experiments regarding binding votes on compensation in Switzerland sheds light on the hitherto mostly theoretical argument that shareholders may prefer to have limits on their own power. The empirical evidence suggests a trade-off: On the one hand, binding votes on compensation amounts provide shareholders with an enhanced ability to ensure alignment.

On the other hand, when shareholders can (partially) set pay levels ex post, this may distort ex ante managerial incentives for extra-contractual, firm-specific investments. Thus, increased shareholder power reduces agency costs, but accentuates hold-up problems. These findings inform the design of policy. 

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Authors

Dr.
Real name:
Christoph Wenk
University of Zurich