Agency Costs of Overvalued Equity
Name
CPL_WP_05_09_Jensen.pdf
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168.53 KB
Format
Adobe PDF
Checksum (MD5)
8a16a73d2343158bf133f70d6ecf3b6a
Author(s)
Jensen, Michael C.
Date Issued
January 9, 2005
Publisher
Center for Public Leadership
Series/Report no.
Center for Public Leadership Working Paper Series;05-09
Abstract
In the past few years, we have seen many fine companies end up in ruins and watched record numbers
of senior executives go to jail. And we will surely hear of more investigations, more prison
terms, and more damaged reputations. Shareholders and society have borne value destruction in the
hundreds of billions of dollars.
What went wrong? Were managers overtaken by a fit of greed? Did they wake up one morning and
decide to be crooks? No. Although there were some crooks in the system, the root cause of the problem
was not the people but the system in which they were operating—a system in which equity
became so dangerously overvalued that many CEOs and CFOs found themselves caught in a vicious
bind where excessively high stock valuations released a set of damaging organizational forces that led
to massive destruction of corporate and social value. The problem was made far worse than it had to
be because few managers or boards had any idea of the destructive forces involved.
Subjects
hks
leadership
cpl
kennedy school
equity
overvalue
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