Glossary of economics research
Results of search for entrenchment follow:
entrenchment:
A possible description of the actions of managers of firms. Managers can make
investments that are more valuable under themselves than under alternative
managers. Those investments might not maximize shareholder value. So
shareholders have a moral hazard in contracting with managers.
Or, in the phrasing of Weisbach (1988): "Managerial entrenchment occurs
when managers gain so much power that they are able to use the firm to further
their own interests rather than the interests of shareholders."
The abstract to Shleifer and Vishny, 1989, p 123, is nicely
explicit: "By making manager-specific investments, managers can reduce
the probability of being replaced, extract higher wages and larger
perquisities from shareholders, and obtain more latitude in determining
corporate strategy."
Source: Shleifer and Vishny, 1989, p 123; Weisbach,
1988;
Demsetz, 1983
Contexts: corporate finance; theory of the firm
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