Journal of Business Ethics

, Volume 99, Issue 4, pp 623–635

Monitoring Costs, Managerial Ethics and Corporate Governance: A Modeling Approach


DOI: 10.1007/s10551-010-0672-1

Cite this article as:
He, L. & Ho, SJ.K. J Bus Ethics (2011) 99: 623. doi:10.1007/s10551-010-0672-1


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.


corporate governancemonitoringmanagerial ethicsSarbanes–Oxley Act

Copyright information

© Springer Science+Business Media B.V. 2010

Authors and Affiliations

  1. 1.Department of Business Administration and Economics, College at BrockportState University of New YorkBrockportU.S.A.
  2. 2.Department of Accounting, College of Business AdministrationNiagara UniversityNiagara FallsU.S.A.