Ex Ante Effects of Ex Post Managerial Ownership
This paper highlights the trade-off between the need to restructure a company and the need to provide managers with appropriate incentives to runit after the restructuring. In order to provide incentives, it is optimal tolet managers acquire equity in the firm. However, the expectations to beable to buy shares in the future may create ex-ante incentives to underinvest (or not restructure), in order to distort downwards the price atwhich shares can be bought. This effect is particularly important forevents where managers can acquire a substantial number of shares, such as privatizations or MBOs.