September 10, 2004

Faculty member's article draws huge response

by Bonnie Marx

CARBONDALE, Ill. - - A finance professor at Southern Illinois University Carbondale has the distinction of being the author of the most requested article for 2003 from the Journal of Banking & Finance.

Wallace N. Davidson III, SIUC professor of finance, co-authored "Agency costs, ownership structure and corporate governance mechanisms" for the May 2003 issue with Manohar Singh, who was then a doctoral student at SIUC and now is a faculty member in the business college at the University of Nevada-Reno.

More than 1,400 requests came in for reprints of the article, which deals with the questions about corporate management and ownership.

"In a corporation, managers run the company but stockholders own it," Davidson said. "It's not always clear if managers are operating for the benefit of the shareholders. That's what is termed in the industry an 'agency problem.' Costs to shareholders are 'agency costs.' We found that (agency costs) lessened when managers own lots of stock in the corporation."

The article dealt with large, well-established companies, Davidson said. He has a similar project in the works that will examine brand new companies wholly by their initial public offerings (IPOs).

Davidson specializes in issues of corporate control.

"Agency costs, ownership structure and corporate governance mechanisms" (Volume 27, Issue 5. May 2003, pages 793-816) may be found linked off the Journal of Banking & Finance Web site,

"This idea of agency theory, that managers don't always run companies for the benefit of the shareholders, is really a popular topic in corporate finance," he said. "That, combined with scandals, had made this a popular topic." Leading in research, scholarly and creative activities is among the goals of Southern at 150: Building Excellence Through Commitment, the blueprint for the development of the University by the time it celebrates its 150th anniversary in 2019.