The Internal Governance of Firms

• Main Authors: Acharya, Viral V. (Author), Myers, Stewart C. (Contributor), Rajan, Raghuram G. (Author)
• Other Authors: Sloan School of Management (Contributor)
• Format: Article
• Language: English
• Published: John Wiley & Sons, Inc, 2014-06-17T19:39:24Z.
• Subjects: Article
• Online Access: Get fulltext

We develop a model of internal governance where the self-serving actions of top management are limited by the potential reaction of subordinates. Internal governance can mitigate agency problems and ensure that firms have substantial value, even with little or no external governance by investors. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, in which dividends are paid by self-interested CEOs to maintain a balance between internal and external control.
University of Chicago. Center for Research in Security Prices
National Science Foundation (U.S.)
Economic and Social Research Council (Great Britain) (Grant No. R060230004)
University of Chicago. Booth School of Business (Initiative on Global Markets)
George J. Stigler Center for the Study of the Economy and the State