DF Lunch Seminar with Prof. Joel Shapiro, University of Oxford

"Who Provides CEO Incentives?” With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg. Abstract: Share sales can lead to changes in the effective control of a firm. Should a CEO be responsive to the current owners of the firm or the future owners? Can a CEO influence who the future owners will be? We study compensation when the CEO's strategic choice affects acquisitions and subsequent employment. Incumbent shareholders may pay the CEO in equity because they value shares less when the firm changes direction in an acquisition. Equity pay can also be used to increase the likelihood of the CEO being fired if she does not take the incumbents’ preferred choice; this may require giving the CEO rents to compensate. Incumbent shareholders may find it too costly to do this and instead accommodate the CEO's preferred change, even when this reduces combined surplus. Other retention and severance instruments are useful in the pay package, but can be dominated by equity pay. The seminar will be held in person.