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Words Speak Louder without Actions

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  • DORON LEVIT

Abstract

Information and control rights are central aspects of leadership, management, and corporate governance. This paper studies a principal‐agent model that features both communication and intervention as alternative means to exert influence. The main result shows that a principal's power to intervene in an agent's decision limits the ability of the principal to effectively communicate her private information. The perverse effect of intervention on communication can harm the principal, especially when the cost of intervention is low or the underlying agency problem is severe. These novel results are applied to managerial leadership, corporate boards, private equity, and shareholder activism.

Suggested Citation

  • Doron Levit, 2020. "Words Speak Louder without Actions," Journal of Finance, American Finance Association, vol. 75(1), pages 91-131, February.
    • Handle: RePEc:bla:jfinan:v:75:y:2020:i:1:p:91-131
    DOI: 10.1111/jofi.12834
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    Cited by:

    1. Laurent Bouton & Aniol Llorente-Saguer & Antonin Macé & Adam Meirowitz & Shaoting Pi & Dimitrios Xefteris, 2022. "Public Information as a Source of Disagreement Among Shareholders," NBER Working Papers 30757, National Bureau of Economic Research, Inc.
    2. Lodh, Rishab & Dey, Oindrila, 2023. "“Fake news alert!”: A game of misinformation and news consumption behavior," MPRA Paper 118371, University Library of Munich, Germany.
    3. Yaron Leitner & Basil Williams, 2023. "Model Secrecy and Stress Tests," Journal of Finance, American Finance Association, vol. 78(2), pages 1055-1095, April.

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