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The Internal Governance of Firms
Author(s) -
ACHARYA VIRAL V.,
MYERS STEWART C.,
RAJAN RAGHURAM G.
Publication year - 2011
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2011.01649.x
Subject(s) - corporate governance , business , dividend , agency cost , value (mathematics) , agency (philosophy) , balance (ability) , principal–agent problem , control (management) , accounting , complement (music) , dividend policy , investment (military) , industrial organization , finance , economics , shareholder , management , politics , philosophy , law , chemistry , computer science , biochemistry , epistemology , machine learning , political science , medicine , complementation , physical medicine and rehabilitation , gene , phenotype
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.