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Executive Remuneration and Corporate Divestment: Motivating Managers to Make Unpalatable Decisions


  • They would like to thank the anonymous referee and Andy Stark (editor) for helpful comments. Thanks also to Deloitte and Barclays Private Equity for financial support.

* Address for correspondence: Mike Wright, Centre for Management Buy-out Research, Nottingham University Business School, Jubilee Campus, Nottingham NG8 1BB, UK. e-mail:


Abstract:  This study examines the impact of voluntary divestment on executive remuneration, using an unbalanced panel of 107 UK quoted companies over the period 1988 to 1993. It employs a dynamic compensation equation, with a vector of controls and alternative specifications of the divestment effect. The results show no general direct evidence of a remuneration process that rewards managers for downsizing their firms. Indeed the substantial pay-size elasticity implies the reverse. However, divestment does have a positive and significant effect in raising executive remuneration under a regime of strong corporate governance, defined in terms of the presence of a substantial blockholder.