De Ratio van Corporate Governance

Abe de Jong (1970) is Professor in Corporate Finance and Corporate Governance at RSM Erasmus University. He obtained a PhD in finance at Tilburg University (1999). His research and teaching interests are in the area of empirical corporate finance and include capital structure choice, dividend policy, risk management, corporate investment and divestment policies, and corporate governance. In this inaugural address he discusses recent developments in the area of corporate finance, and in particular behavioral aspects of strategic and financial decision-making. The insights from behavioral finance are confronted with the effectiveness of corporate governance mechanisms.

The top management of corporations has a major influence on the investments and financing of the firms under their control. According to the economics-based principal-agent theory, managers will maximize their own utility, even at the expense of the shareholders and other stakeholders. The corporate governance literature describes disciplinary mechanisms and their effectiveness in mitigating agency problems.Recent studies in the field of behavioral corporate finance show that managers do not always behave rationally and that this behavior potentially has a measurable negative impact on strategic decisions.The central question in this address is which influence corporate governance can assert in the reduction of irrational managerial behavior. Because the irrationality is unconscious behavior, a number of mechanisms that mitigate rational agency problems,does not seem effective.On the other hand, the role of boards and the market for corporate control (as practiced, for example, by private equity funds) seem effective mechanisms.