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Definition of Entrenchment

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Definition: Entrenchment is a possible description of the actions of managers of firms. Managers can make investments that are more valuable under themselves than under alternative managers. Those investments might not maximize shareholder value. So shareholders have a moral hazard in contracting with managers.

Or, in the phrasing of Weisbach (1988): "Managerial entrenchment occurs when managers gain so much power that they are able to use the firm to further their own interests rather than the interests of shareholders."

The abstract to Shleifer and Vishny, 1989, p 123, is nicely explicit: "By making manager-specific investments, managers can reduce the probability of being replaced, extract higher wages and larger perquisities from shareholders, and obtain more latitude in determining corporate strategy."

Terms related to Entrenchment: About.Com Resources on Entrenchment: Writing a Term Paper? Here are a few starting points for research on Entrenchment:

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