The Internal Governance of Firms

Viral V. Acharya (), Stewart C. Myers and Raghuram G. Rajan

No 15568, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of internal governance where the self-serving actions of top management are limited by the potential reaction of subordinates. Internal governance can mitigate agency problems and ensure that firms have substantial value, even with little or no external governance by investors. Internal governance works best when both top management and subordinates are important in generating cash flow. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, where dividends are paid by self-interested CEOs to maintain a balance between internal and external control. Our paper can explain why firms with limited external oversight, and firms in countries with poor external governance, can have substantial value.

JEL-codes: G31 G34 G35 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2009-12
Note: CF
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w15568.pdf (application/pdf)

Related works:
Journal Article: The Internal Governance of Firms (2011)
Working Paper: The Internal Governance of Firms (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:15568

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15568

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().