A study by Lambert and Larcker (1985) found that stock prices rose 3% when companies announced the adoption of golden parachutes. Other studies have provided a basis for the market's positive stock price response. In a sample of 146 firms that adopted golden parachutes between 1975 and 1988, Machlin, Choe, and Miles found that the number of multiple takeover offers was significantly greater for firms that possessed golden parachute agreements than for those firms without such agreements. They also found a positive relationship between the size of the golden parachute agreement and the magnitude of the takeover premium.

 Intuitively discuss the underlying drivers of this phenomenon.

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The positive stock price response to the adoption of golden parachutes can be attributed to several ... View the full answer