NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Internal Governance of Firms

Viral V. Acharya, Stewart C. Myers, Raghuram Rajan

NBER Working Paper No. 15568
Issued in December 2009, Revised in June 2014
NBER Program(s):   CF

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, where dividends are paid by self-interested CEOs to maintain a balance between internal and external control.

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Document Object Identifier (DOI): 10.3386/w15568

Published: Viral V. Acharya & Stewart C. Myers & Raghuram G. Rajan, 2011. "The Internal Governance of Firms," Journal of Finance, American Finance Association, vol. 66(3), pages 689-720, 06. citation courtesy of

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