Incentives, downsizing, and value creation at general dynamics
In 1991, defense contractor General Dynamics engaged a new management team which adopted an explicit corporate objective of creating shareholder value. The company tied executive compensation to shareholder wealth creation, and subsequently implemented a strategy that included downsizing, restructur...
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Published in | Journal of financial economics Vol. 37; no. 3; pp. 261 - 314 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
01.03.1995
Elsevier North-Holland in collaboration with the Graduate School of Management, University of Rochester Elsevier Sequoia S.A |
Series | Journal of Financial Economics |
Subjects | |
Online Access | Get full text |
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Summary: | In 1991, defense contractor General Dynamics engaged a new management team which adopted an explicit corporate objective of creating shareholder value. The company tied executive compensation to shareholder wealth creation, and subsequently implemented a strategy that included downsizing, restructuring, and exit. Paying large executive cash bonuses amid layoffs ignited controversy. However, by 1993 shareholders realized gains approaching $4.5 billion, representing a dividend-reinvested return of 553%. The study shows how incentives assist in shaping strategy, illustrates the political costs and economic benefits of downsizing and demonstrates that even firms in declining industries have substantial opportunities for value creation. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0304-405X 1879-2774 |
DOI: | 10.1016/0304-405X(94)00803-9 |