Shareholder Accountability and Corporate Governance
  • Dino Falaschetti
Part of the Studies in Public Choice book series (SIPC, volume 14)

Corporations should serve shareholders’ interests – they “own” the firms, after all. But judging from a widespread explosion of executive pay and a decoupling of pay from performance, current governance practices instead give management too heavy a hand in steering the corporation. What should we do? Strengthen public laws and securities regulations, and even pursue litigation, to give shareholders a louder voice in corporate governance.

This type of argument is popular but incomplete.1Importantly, giving shareholders a stronger say in governing corporations offers no free lunch – doing so would also change the distributional pressures on corporate revenues and thus fundamentally alter other stakeholders’ incentives to act productively. Bond market participants, for example, may demand higher interest rates to compensate for the increased likelihood of corporations pursuing projects that favor equity over debt holders. And those who are asked to instead supply human capital, like...


Large Shareholder Ownership Concentration Hostile Takeover Golden Parachute Strong Shareholder 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Agrawal, Anup and Charles R. Knoeber (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis 31, 377–397.CrossRefGoogle Scholar
  2. Alchian, Armen A. and Harold Demsetz (1972). Production, information costs, and economic organization. American Economic Review 62(5), 777–795.Google Scholar
  3. Arrow, Kenneth J. (1951). Social Choice and Individual Values. New Haven and London: Yale University Press.Google Scholar
  4. Arrow, Kenneth J. (1974). The Limits of Organization. New York and London: W. W. Norton.Google Scholar
  5. Bainbridge, Stephen M. (2002). Corporation Law and Economics. New York: Foundation Press.Google Scholar
  6. Bauman, Jeffrey D., Alan R. Palmiter, and Frank Partnoy (2007). Corporations Law and Policy: Materials and Problems, 6th edition. St. Paul, MN: Thomson WestGoogle Scholar
  7. Bebchuk, Lucian and Jesse Fried (2004). Pay Without Performance: The Unfulfilled Promise of Executive Compensation. Cambridge and London: Harvard University Press.Google Scholar
  8. Billett, Matthew T., Tao-Hsien Dolly King, and David C. Mauer (2004). Bondholder wealth effects in mergers and acquisitions: new evidence from the 1980s and 1990s. Journal of Finance 59(1), 107–135.CrossRefGoogle Scholar
  9. Blair, Margaret M. and Lynn A. Stout (1999). A team production theory of corporate law. Virginia Law Review 85, 248–328.CrossRefGoogle Scholar
  10. Daines, Robert M. and Michael Klausner (2001). Do IPO charters maximize firm value? Anti-takeover protections in IPOs. Journal of Law, Economics, & Organization 17(April), 83–120.CrossRefGoogle Scholar
  11. Demsetz, Harold and Kenneth Lehn (1988). The structure of corporate ownership: causes and consequences. In Harold Demsetz (Ed.), Ownership, Control, and the Firm: The Organization of Economic Activity, Volume 1 (pp. 202–222). Cambridge and Oxford: Basil Blackwell.Google Scholar
  12. Dodd, Chris (2007). Dodd stands up for shareholder rights: urges Cox to reject proxy access proposal, sends letter to SEC chairman endorsing current rules. Accessed 26 November 2008.
  13. Dorsey and Whitney (2007). Majority election of directors: where are we today? Corporate Update, October 25.Google Scholar
  14. Falaschetti, Dino (2002). Golden parachutes: credible commitments or evidence of shirking? Journal of Corporate Finance 8(2),159–178.CrossRefGoogle Scholar
  15. Forelle, Charles and Kara Scannell (2006). Revisiting executive pay law: Congress may reduce, reverse deduction that fed stock-option explosion. Wall Street Journal, September 6, C1, C4.Google Scholar
  16. Gabaix, Xavier and Augustin Landier (2008). Why has CEO pay increased so much? Quarterly Journal of Economics 123(1), 49–100.CrossRefGoogle Scholar
  17. Garvey, Gerald and Noel Gaston (1991). Delegation, the role of managerial discretion as a bonding device, and the enforcement of implicit contracts. In Thomas B. Fomby and George F. Rhodes, Jr. (Eds.), Econometric Methods and Models for Industrial Organizations, Advances in Econometrics, volume 9 (pp. 87–119). Greenwich and London: JAI Press Inc.Google Scholar
  18. Gordon, Jeffrey (1991). Shareholder initiative: a social choice and game theoretic approach to corporate law. University of Cincinnati Law Review 60, 347–385.Google Scholar
  19. Hansmann, Henry (2000). The Ownership of Enterprise. Cambridge, MA: Harvard University Press.Google Scholar
  20. Holmstrom, Bengt (1982). Moral hazard in teams. Bell Journal of Economics 13(2), 324–340.CrossRefGoogle Scholar
  21. Holmstrom, Bengt (1999). The firm as a subeconomy. Journal of Law, Economics, & Organization 15(1), 74–102.CrossRefGoogle Scholar
  22. Iwata, Edward (2008). Corporate governance gets more transparent worldwide. USA Today, February 17, Accessed 18 February 2008.
  23. Kamma, Sreenivas, Joseph Weintrop, and Peggy Wier (1988). Investors’ perceptions of the Delaware supreme court decision in Unocal v. Mesa. Journal of Financial Economics 20(1–2), 419–430.CrossRefGoogle Scholar
  24. Klock, Mark S., Sattar A. Mansi, and William F. Maxwell (2005). Does corporate governance matter to bondholders? Journal of Financial and Quantitative Analysis 40(4), 693–719.CrossRefGoogle Scholar
  25. Knoeber, Charles R. (1986). Golden parachutes, shark repellants, and hostile tender offers. American Economic Review 76(1), 155–167.Google Scholar
  26. Kreps, David M. (1990). A Course in Microeconomic Theory. Princeton: Princeton University Press.Google Scholar
  27. Levitt, Arthur Jr. (2006). Stocks populi. Wall Street Journal, October 27, A14.Google Scholar
  28. Lublin, Joann S. and Scott Thurm (2006). Behind soaring executive pay, decades of failed restraints. Wall Street Journal, October 12, A1 and A16.Google Scholar
  29. Mayer, Brown, Rowe, & Maw (2006). SEC significantly revises executive compensation and related person disclosure requirements. Securities Update, August 29.Google Scholar
  30. Milbank, Tweed, Hadley, & McCloy (2007). SEC amends proxy rules to permit exclusion of shareholder proposals seeking access to company proxy materials for director nominations. Milbank Client Alert, December 13.Google Scholar
  31. Miller, Gary J. (1992). Managerial Dilemmas: The Political Economy of Hierarchy. Cambridge, New York, and Melbourne: Cambridge University Press.Google Scholar
  32. Murray, Alan (2006). CEOs get off the ropes on executive pay. Wall Street Journal, July 5, A2.Google Scholar
  33. Netter, Jeffry and Annette Poulsen (1989). State corporation laws and shareholders: the recent experience. Financial Management 18(3), 29–40.CrossRefGoogle Scholar
  34. Olson, Mancur (1971). The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge and London: Harvard University Press.Google Scholar
  35. Pay attention (2008). The Economist June 14, 77–78.Google Scholar
  36. Say on pay in America: fair or foul (2008). The Economist, June 14, 78.Google Scholar
  37. Scannell, Kara (2007). SEC’s Solomon? Cox splits vote on proxy access. Wall Street Journal, July 26, C1–C2.Google Scholar
  38. Schofield, Norman J. (1985). Social Choice and Democracy. Berlin, Heidelberg, New York, and Tokyo: Springer-Verlag.Google Scholar
  39. Schofield, Norman J. (2008). The Political Economy of Democracy and Tyrrany. Munich: Oldenbourg.Google Scholar
  40. Shleifer, Andrei and Lawrence H. Summers (1988). Breach of trust in hostile takeovers. In Alan J. Auerbach (Ed.) Corporate Takeovers: Causes and Consequences (pp. 33–56). Chicago and London: University of Chicago Press.Google Scholar
  41. Sowell, Thomas (2008). Ivan and Boris again: we are all Russian peasants? National Review Online, November 26. Accessed 26 November 2008.

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Florida State UniversityTallahasseeUSA
  2. 2.Hoover InstituteStanford UniversityStanfordUSA

Personalised recommendations