Monitoring Costs,Managerial Ethics
and Corporate Governance: A Modeling Approach |
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Authors: | Lerong He Shih-Jen Kathy Ho |
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Institution: | (1) Department of Business Administration, National Taiwan University, Taipei, Taiwan |
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Abstract: | This article evaluates effectiveness and costs of external regulation, in particular the Sarbanes–Oxley Act of 2002 (SOX)
in restricting managerial malfeasance and safeguarding shareholder interests. It discusses the role of managerial ethics as
an alternative corporate governance mechanism to protect shareholder value. This article builds a mathematical model to illustrate
shareholders’ choices of best corporate governance mechanisms, taking into account the influence of managerial ethics, effectiveness
and costs of monitoring. We suggest that the best corporate governance design and the optimal monitoring expenses are influenced
by managerial types, monitoring efficiency, and effectiveness of ethics education. We conclude that stringent regulation and
monitoring may not always enhance shareholder value. When managerial ethics could be improved by ethics education or social
norms, ethics education may be a better alternative than stringent regulation. |
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Keywords: | |
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