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    The Symbolic Management Of Stockholders: Corporate Governance Reforms And Shareholder Reactions

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    SymbolicManagement.pdf (3.437Mb)
    Date
    1998-03
    Author
    Westphal, J. D.
    Zajac, E. J.
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    Abstract
    This paper examines the consequences of symbolic action in corporate governance. Specifically, we examine (1) whether the stock market reacts favorably to specific governance mechanisms that convey the alignment of CEO and shareholder interests, such as the adoption of long-term incentive plans (LTIPs), even if such plans are not actually implemented, (2) whether providing agency-related explanations for LTIPs affects the stock market response, and (3) whether the symbolic adoption of LTIPs deters other governance reforms that would reduce CEOs' control over their boards. Analysis of data from over 400 corporations over a ten-year period suggests that symbolic corporate actions can engender significant positive stockholder reactions and deter other, more substantive governance reforms, thus perpetuating power imbalances in organizations. We discuss implications for institutional and agency-based perspectives on organizations.
    Department
    Business Administration
    Subject
    interfirm tender offers
    board composition
    organizational legitimacy
    managerial incentives
    stock returns
    ceo pay
    performance
    ownership
    compensation
    market
    business
    management
    URI
    http://hdl.handle.net/2152/29319
    Citation
    James D. Westphal and Edward J. Zajac. Administrative Science Quarterly Vol. 43, No. 1 (Mar., 1998), pp. 127-153. DOI: 10.2307/2393593
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    • facebook
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