Managerial Entrenchment: Model and Impact on the Shareholders’ Wealth
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The aim of this paper is to measure the degree of the managerial entrenchment and to study its impact on the performance of the firm. The model of the entrenchment’s degree is based on both the personal characteristics of the manager and on the ownership structure of the firm. According to our empirical studies carried on 815 firms during the period 2001- 2004, the entrenchment’s degree depends significantly on the age and on the tenure of the manager as well as on the relative power of the managerial ownership. Moreover, the relationship between the managerial entrenchment and the performance of the firm is not linear. It takes the form of a harmful entrenchment then of a beneficial one as the entrenchment’s degree increases. This result shows that the managerial entrenchment is not always harmful to the shareholders’ wealth. Empirically, by exceeding a certain critical level (0.81), the managerial entrenchment becomes beneficial to the shareholders.