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Journal of Finance Vol. 66 No. 3 2011

The Internal Governance of Firms

Viral V. Acharya1; Stewart C. Myers1; Raghuram G. Rajan2,3,4

1 University of Chicago · 2 Weber State University · 3 Center for Economic and Policy Research · 4 Moscow Institute of Thermal Technology

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. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, in which dividends are paid by self‐interested CEOs to maintain a balance between internal and external control.

DOI
10.1111/j.1540-6261.2011.01649.x
Volume
66
Issue
3
Pages
689-720
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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