A Framework for Assessing Corporate Governance Reform
In light of recent corporate scandals, numerous proposals have been introduced for reforming corporate governance. This paper provides a theoretical framework through which to evaluate these reforms. Unlike various ad hoc arguments, this framework recognizes that governance structures arise endogenously in response to the constrained optimization problems faced by the relevant parties. Contract theory provides a set of necessary conditions under which governance reform can be welfare-improving: 1) There is asymmetric information at the time of contracting; or 2) Governance failures impose externalities on third parties; or 3) The state has access to remedies or punishments that are not available to third parties. We provide a series of models that illustrate the importance of these conditions and what can go wrong if they are not met.
|Date of creation:||Feb 2006|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aghion, Philippe & Hermalin, Benjamin, 1990.
"Legal Restrictions on Private Contracts Can Enhance Efficiency,"
Journal of Law, Economics and Organization,
Oxford University Press, vol. 6(2), pages 381-409, Fall.
- Aghion, P. & Hermalin, B., 1990. "Legal Restrictions on Private Contracts Can Enhance Efficiency," DELTA Working Papers 90-14, DELTA (Ecole normale supérieure).
- Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
- Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
- repec:oup:restud:v:66:y:1999:i:1:p:169-82 is not listed on IDEAS
- Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
- Diamond, Douglas W & Verrecchia, Robert E, 1991. " Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-59, September.
- Inderst, Roman & Mueller, Holger M, 2005. "Keeping the Board in the Dark: CEO Compensation and Entrenchment," CEPR Discussion Papers 5315, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12050. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.