Stockholder–Manager Conflicts and Firm Value

The separation of ownership and control in a modern corporation often requires the delegation of significant decision-making authority to professional managers, which introduces the possibility that managers will have incentives to make decisions that benefit them at the expense of stockholders. We discuss the theory and empirical evidence on stockholder–manager conflicts, provide an overview of the problems that can arise in U.S. corporations, summarize recent empirical evidence on the effectiveness of the various mechanisms that can control these problems, and alert investors to global variations in problems and controls.