50 Pages Posted: 3 Nov 2006
Date Written: November 2, 2006
The top management of corporations has a major influence on the investments and financing of the firms under their control. According to the economics-based principal-agent theory, managers will maximize their own utility, even at the expense of the shareholders and other stakeholders. The corporate governance literature describes disciplinary mechanisms and their effectiveness in mitigating agency problems. Recent studies in the field of behavioral corporate finance show that managers do not always behave rationally and that this behavior potentially has a measurable negative impact on strategic decisions. The central question in this address is which influence corporate governance can assert in the reduction of irrational managerial behavior. Because the irrationality is unconscious behavior, a number of mechanisms that mitigate rational agency problems, does not seem effective. On the other hand, the role of boards and the market for corporate control (as practiced, for example, by private equity funds) seem effective mechanisms.
Notes: Downloadable document is in German.
Keywords: Corporate Governance, Inaugural Address, Principal-Agent Theory, Behavioral Corporate Finance, Irrational Managerial Behavior
JEL Classification: M, G3, G30
Suggested Citation: Suggested Citation
de Jong, Abe, De Ratio van Corporate Governance (November 2, 2006). ERIM Report Series Reference No. EIA-2006-028-F&A. Available at SSRN: https://ssrn.com/abstract=942154