The Downside to Limiting Manager Entrenchment

Critics often argue that firms and financial standard setters fail to understand fully the implications of their corporate governance policies. The general belief is that stronger governance almost necessarily leads to better firm outcomes. This idea rests on the assumption that stronger governance better aligns the interests of managers with the interests of shareholders – limiting manager opportunism or unethical behaviors and incentivizing managers to focus on shareholders’ best interests. In a forthcoming academic article entitled, “Are Entrenched Managers’ Accounting Choices More Predictive of Future Cash Flows?” we examine whether stronger governance, specifically limits to manager entrenchment, necessarily translates to … Read more