The Internal Governance of Firms
Author(s)Acharya, Viral V.; Myers, Stewart C.; Rajan, Raghuram G.
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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.
DepartmentSloan School of Management
Journal of Finance
John Wiley & Sons, Inc
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.
Author's final manuscript