Management and Organizational Studies 2275A/B Quiz: The Strategy of Golden Parachutes.docx
4 Mar 2015
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What is a golden parachute? o to be received in the event he is "fired" A clause written into a manger"s (ceo, say) contract specifying benefits o o. Ceo"s who "drive firm into a ditch" leave with 20240$ Basically: they induce a ceo to "leave quietly" when that is in shareholder"s interests shareholders to buy their stock at a set price, greater than current trading price - the takeover premium. If firm a gets a takeover bid from firm b, this is in the form of an offer to. B believes firm a is undervalued, which is (one) reason for the. Incentive problem: board"s choice alters decision incentives for ceo. Turn this into a game tree, but first need some further assumptions: Pf = probably it will go through if he fights. Pn = probably it will go through if he doesn"t fight. So shareholders make money if deal does through: Those who sell get a premium over current price.
