Words Speak Louder Without Actions

58 Pages Posted: 28 Dec 2014 Last revised: 11 Jun 2019

See all articles by Doron Levit

Doron Levit

University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Date Written: November 13, 2018


Information and control rights are central aspects of leadership, management, and corporate governance. This paper studies a principal-agent model that features both communication and intervention as alternative means to exert influence. The main result shows that a principal's power to intervene in an agent's decision limits the ability of the principal to effectively communicate her private information. The perverse effect of intervention on communication can harm the principal, especially when the cost of intervention is low or the underlying agency problem is severe. These novel results are applied to managerial leadership, corporate boards, private equity, and shareholder activism.

Keywords: Communication, Corporate Governance, Intervention, Managerial Leadership

JEL Classification: D72, D74, D82, D83, G28, G34

Suggested Citation

Levit, Doron, Words Speak Louder Without Actions (November 13, 2018). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2543226 or http://dx.doi.org/10.2139/ssrn.2543226

Doron Levit (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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