Managerial incentives for takeovers

Resumen

The paper studies managerial incentives in a model where managers choose product market strategies and make takeover decisions. The equilibrium contract includes an incentive to increase the firm's sales, under either quantity or price competition. This result contrasts with previous findings in the literature, and hinges on the fact that when managers are more aggressive, rival firms earn lower profits and thus are willing to seU out at a lower price. However, as a side-effect of such a contract, the manager might undertake unprofitable takeovers.