Document Type
Article
Publication Date
1991
Abstract
The literature on agency costs has established that the introduction of outside equity results in conflicts between new owners and management that lowers the value of the firm. In contrast, this paper, by focusing on management-labor conflicts, demonstrates that the value of the firm can be increased by the introduction of outside equity. We obtain this result by showing that the bargaining position of the owner-manager is enhanced when outside equity is increased. As a result, workers with firm-specific skills are persuaded to accept a lower wage, and hence the value of the firm increases.
Recommended Citation
Mercurio, Nicholas; Sourbis, Haralambos; and Whitney, Gerald, "Ownership structure, value of the firm and the bargaining power of the manager" (1991). Department of Economics and Finance Working Papers, 1991-2006. Paper 55.
https://scholarworks.uno.edu/econ_wp/55