Corporate Governance Myths: Comments on Armstrong, Guay, and Weber

Abstract:     
This paper argues that academics, politicians, and the media have six commonly held but misguided beliefs about corporate governance. While Armstrong, Guay, and Weber (2010) discuss some of these misconceptions, a wider recognition that these beliefs are actually “myths” is important. They include: (1) a common definition of “corporate governance” exists; (2) a useful distinction is “internal” versus “external” governance mechanisms; (3) outside directors perform two separable roles: to advise and monitor managers; (4) research has identified “good” and “bad” governance practices; (5) a “good” governance index can be constructed; and (6) corporate governance “best practices” can be deduced from peer data.

Number of Pages in PDF File: 28

Keywords: corporate governance, financial accounting, agency costs, contracting, debt contracts

JEL Classification: D21, D23, J33, K22, L14, L20, M40, M41

working papers series