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The Internal Governance of Firms

Author(s)
Acharya, Viral V.; Myers, Stewart C.; Rajan, Raghuram G.
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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.
Date issued
2011-06
URI
http://hdl.handle.net/1721.1/88023
Department
Sloan School of Management
Journal
Journal of Finance
Publisher
John Wiley & Sons, Inc
Citation
Acharya, Viral V., Stewart C. Myers, and Raghuram G. Rajan. “The Internal Governance of Firms.” The Journal of Finance 66, no. 3 (June 2011): 689–720.
Version: Author's final manuscript
ISSN
00221082

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