Does Shareholder Primacy Lead to a Decline in Managerial Accountability?

Posted: 16 Jun 2008

See all articles by Antoine Reberioux

Antoine Reberioux

Université Paris VII Denis Diderot; University Antilles Guyane - Faculty of Law and Economics

Date Written: July 2007

Abstract

Shareholder primacy is increasingly considered to be the most effective way to foster managerial (corporate) accountability. Contrary to this now standard argument, we consider that shareholder primacy, rather than gatekeeper failure, is directly responsible for the multiplication of accounting irregularities and the dramatic increase in executive compensations. To defend this thesis, we propose a new reading of Berle and Means (1932), Galbraith (1973) and Alchian and Demsetz (1972), stressing the logical failure of a control of the business firm provided for by stock markets: the implementation of shareholder primacy implies a partial disconnection between access to internal knowledge and empowerment. In turn, this disconnection favours deceptive behaviours on the part of corporate insiders. Empirical evidence mostly based on Enron-era financial scandals illustrates our argument.

Keywords: Shareholder primacy, Managerial accountability, Theory of the firm

JEL Classification: D23, G30, L20

Suggested Citation

Reberioux, Antoine, Does Shareholder Primacy Lead to a Decline in Managerial Accountability? (July 2007). Cambridge Journal of Economics, Vol. 31, Issue 4, pp. 507-524, 2007. Available at SSRN: https://ssrn.com/abstract=1146013 or http://dx.doi.org/10.1093/cje/bem009

Antoine Reberioux (Contact Author)

Université Paris VII Denis Diderot

2, place Jussieu
Paris, 75005
France

University Antilles Guyane - Faculty of Law and Economics ( email )

Pointe à Pitre
France

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