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.

Additional Metadata
Keywords Behavioral Corporate Finance, Corporate Governance, Inaugural Address, Irrational Managerial Behavior, Principal-Agent Theory
JEL Corporate Finance and Governance (jel G3), Corporate Finance and Governance: General (jel G30), Business Administration and Business Economics; Marketing; Accounting (jel M)
Publisher Erasmus Research Institute of Management
ISBN 978-90-5892-128-4
Persistent URL
Series ERIM Inaugural Address Series Research in Management
de Jong, A. (2006, October 6). De Ratio van Corporate Governance. ERIM Inaugural Address Series Research in Management. Erasmus Research Institute of Management. Retrieved from