Theoretical Foundations of Corporate Governance Revisited: a Critical Review

In this paper we review some of the initial ideologies regarding corporate governance, focusing in particular on the in the literature dominating Principal-Agent-Approach. We detail the implied assumptions and the thereof resulting consequences for corporate governance, including some resulting inconsistencies. Overall, we find that in the to principal-agent-conflict is rarely defined with the necessary rigor, but find that the model seems to be applied to almost any situation loosely tied to the topic of corporate governance. We conclude that due to the missing theoretical rigor and the missed developments in the area of management theory the resulting corporate governance policy recommendations are often inconsistent and that the commonly applied theoretical framework for corporate governance discussions might not be the most suitable one for policy recommendations as well as for regulatory actions.