This article examines the properties of wage and profit-sharing contracts in a model of oligopoly with capital market equilibrium. While profit-sharing contracts dominate market wage contracts, profit-sharing also reduces the firm's cost of equity capital under fairly broad conditions of oligopoly, by enforcing lower costs in exchange for a pre-determined share of cash-flows to workers. This form of operational leverage both reinforces the classical effect of market power on systematic risk and the impact of profit-sharing on the corporate finance of the firm, as previously suggested by Ichino (1994, European Economic Review 38, 1411-1422).
CITATION STYLE
Bughin, J. (1999). Oligopoly profit-sharing contracts and the firm’s systematic risk. European Economic Review, 43(3), 549–558. https://doi.org/10.1016/S0014-2921(98)00036-1
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