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Cambridge Journal of Economics Advance Access published online on May 15, 2007
Cambridge Journal of Economics, doi:10.1093/cje/bem009
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Does shareholder primacy lead to a decline in managerial accountability?

Antoine Rebérioux*

* University Paris X

Address for correspondence: Université Paris X – Nanterre, EconomiX, Bâtiment K, 200 avenue de la République, 92001 Nanterre cedex, France; email: antoine.reberioux{at}u-paris10.fr.

Shareholder primacy is increasingly considered to be the most effective way to foster managerial (corporate) accountability. Contrary to this now standard argument, we consider that shareholder primacy, rather than gatekeeper failure, is directly responsible for the multiplication of accounting irregularities and the dramatic increase in executive compensations. To defend this thesis, we propose a new reading of Berle and Means (1932), Galbraith (1973) and Alchian and Demsetz (1972), stressing the logical failure of a control of the business firm provided for by stock markets: the implementation of shareholder primacy implies a partial disconnection between access to internal knowledge and empowerment. In turn, this disconnection favours deceptive behaviours on the part of corporate insiders. Empirical evidence mostly based on Enron-era financial scandals illustrates our argument.

Key Words: Shareholder primacy • Managerial accountability • Theory of the firm

JEL classifications: D23, G30, L20

Manuscript received July 25, 2005; final version received January 26, 2007.


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