The Disciplinary Role of Takeovers
This paper presents a theory of the disciplinary role of takeovers based on an explicit model of managerial incentive problems stemming from a symmetric information. It is argued that an informed raider can reduc e incentive problems by making managerial compensation more sensitive to information unavailable to shareholders. The paper also highlight s the importance of specifying the source of contractual inefficienci es when analyzing the effect of takeovers on incentives.