The Economics of Corporate Governance
40 Pages Posted: 27 Jul 2022
Date Written: July 19, 2022
Abstract
This paper surveys the academic literature on the governance of for-profit, publicly traded corporations. We first address corporate objectives. Specifically, we discuss how shareholder value maximization relates to alternative doctrines such as stakeholder capitalism, and why the alternatives are likely to fall short of their promises. We then review the role of corporate governance in addressing potential conflicts of interests between shareholders and their agents: directors and executives. The paper then turns to the empirical literature, which finds that electing independent and qualified boards, allowing takeover markets to operate freely, and aligning executive compensation with shareholder interests all have a positive effect on shareholder value. We conclude by outlining potential implications for investment stewardship.
Keywords: Corporate governance, agency costs, principal-agent problem, boards, directors, takeovers, antitakeover provisions, staggered boards, poison pills, dual class stock, executive compensation
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation