Corporate Finance And Literature Review Corp2017 Research Paper

1079 words - 5 pages

Lecture 1
· Outline origins of corporate governance
· define corporate governance
· explain different theoretical framework for understanding corporate governance
· discuss objectives of corporate governance
· outline important mechanisms used in corporate governance
Origins of corporate governance
Keasey, Thompson & Wright 2005
· corporate governance = term that scarcely existed before the 1990’s
· is now universily invoked wherever business and finance discussed
Mallin 2013
· CG = area that has grown rapidly in the last decade since colllapse of Enron in 2001
· also the subsequent financial problems of other companies in various countries
Vinten 2001
· CG = not a fledging issue in either economies of UK and USA
· may be dated to when incorporation with limited liability became available in nineteenth century with need for legislation and regulation
Rise of corporate governance linked to:
· separation of ownership from control
· rise in importance of institutional shareholders
· scandals arising from insufficient checks on powerful executives
· creation of companies as separate legal entities
· subsequent corporate failures arising through insufficient controls
· levels of executive remuneration (pay)
· globalisation of economy
· recent financial crisis
Definitions of corporate governance
Soloman 2013
· there is no single accepted definition of corporate governance
· substantial differences in definitions according to which country is considered
· boards, shareholders and stakeholders share common understanding of prupose of corporate governance
· boards account to shareholders and other stakeholders for stewardship
· shareholders and other significant stakeholders hold boards to account
Shleifer and Vishny 1997
· CG deals with ways in which suppliers of finance to corporations assure themselves of getting a return on their investment
FRC 2012
· relationship between different parties
· respective responsibilities
· means of regulation
Theoretical frameworks for understanding corporate governance
· agency theory
· stewardship theory
· stakeholder theory
· transaction cost theory
Agency theory = restrain self interested agents
· capital requirements lead to large firms
· separation of ownership and control
· expertise of agents
· self serving rational agents
· agents award themselves high salary / other benefits
· markets not perfectly competitive so limits to information for owners
· principles incur agency costs
· internal corporate governance mechanism used
· external corporate governance / regulations
Stewardship theory = gives executives proper amount of authority
· views humankind as priorty for groups and trust worthy
· employees behaviour will not depart from interests of his/her organisation
· stewards behaviour = logical as he/she perceives greater usefulness in cooperative behaviour
· directors in diverse organisations act in the best interest of shareholders as a group
· design governance structures to empower executives to maximise...

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