Do parachutes discipline managers? An analysis of takeover battles

► We analyze a takeover battle as a contest between two managers. ► Costly influence activities affect the probability to head the merged firm. ► In joint shareholder optimum severance pay crowds out until all influence activities. ► Contractual severance pay claims only select a particular CEO as head of the new firm. ► Severance pay does not depend on differences in compensation structures or levels.