still benefits from the increase in the merged firm's total value. Moreover, given that the managers are compensated … according to an identical linear incentive scheme, the optimal shareholder policy always entails a corner solution. Managers …

managers' incentive compensation packages. I find that shareholder value increases with risk and therefore managerial risk … aversion creates potential agency conflicts between managers and shareholders. I also find that firms provide managers with … idiosyncratic (rather than systematic) risk and managers are more risk-averse. Collectively, these results suggest that firms …