This paper considers incentives faced by investors (financial institutions) to become actively involved in the governance of under-performing companies in their portfolio as recently proposed. By considering the private benefits and the costs of investor activism separately, it questions the...

Inequity aversion is a special form of other regarding preferences and captures many features of reciprocal behavior, an apparently robust pattern in human nature. Using this concept we analyze the Moral Hazard problem and derive several results which differ from conventional contract theory....