Irrelevance of Governance Structure

65 Pages Posted: 12 Mar 2019 Last revised: 13 May 2020

See all articles by Zohar Goshen

Zohar Goshen

Columbia Law School; European Corporate Governance Institute (ECGI); Ono Academic College Faculty of Law

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

Date Written: February 24, 2019

Abstract

Does corporate governance structure matter for firm value? We develop a model in which the allocation of control rights between shareholders and managers (“governance structure”) affects managers’ incentive to invest (strong governance tightens managerial freedom and weak governance loosens it), and firms’ investment decisions are linked through a market for resources. We show that in a competitive equilibrium, which is socially efficient, corporate governance is irrelevant to firm value even in the presence of agency costs and incomplete markets. Our analysis, therefore, provides an important benchmark against which the effects of governance structures could be evaluated.


Keywords: Corporate Governance, Market Power, Shareholder Rights, Control Rights, Agency Costs, Principal Costs

JEL Classification: D21, D23, D74, D83, G23, G30, G32, G34, K22

Suggested Citation

Goshen, Zohar and Levit, Doron, Irrelevance of Governance Structure (February 24, 2019). Columbia Law and Economics Working Paper No. 603, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 606/2019, Available at SSRN: https://ssrn.com/abstract=3340912 or http://dx.doi.org/10.2139/ssrn.3340912

Zohar Goshen (Contact Author)

Columbia Law School ( email )

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United States
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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Ono Academic College Faculty of Law

104 Zahal St.
Kiryat Ono, 55000
Israel

HOME PAGE: http://www.ono.ac.il

Doron Levit

University of Washington, Foster School of Business ( email )

434 Paccar Hall, 4273 E Stevens Way NE
Seattle, WA 98195
United States

HOME PAGE: http://https://sites.google.com/view/doronlevit

European Corporate Governance Institute (ECGI) ( email )

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

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