Corporate governance and CEO risk incentives ,impact on the firm performance
Introduction:
Corporate governance is very important elements that can provide information on how to maximize shareholder wealth . Good corporate governance plays a very important rule to increase the market value of companies. Because good corporate governance defines the rights and duties of the stakeholder of the company including shareholders , management and the board of directors. Good corporate help managers have focused on improving the performance of corporate governance. Good corporate governance is also working for the best interests of shareholders, investors , customers and supplier of corporate governance. Also helps to overcome the bad image and bad reputation of the organization and highlight the failure of the fraud and the reason for the organization.
Maximizing shareholder wealth is important objective of corporate governance can not be ignored at any time. While Berle and Means (1932 ) were the first time to present the theory of the firm governs and that time many authors follow this part and develop new theories Modiglani and Miller ( 1958) develop the theory of structure capital , Jensen and Meckling (1976). Define agency theory ( contract between the principles and agent services on behalf of the principle ) .
Corporate governance is essentially the division of rights and responsibilities among stakeholders , managers, for the purposes of decision making and the settlement of its affairs. Capital structure refers to the capital structure is a mixture of percentage of money working in the company two forms are available from a capital is the capital of the debt and equity. Each capital has its own management setting importance of ...
... middle of paper ...
... have the resources and mechanisms to influence the CEO indirectly.
Some have Pay TV and some serve on the Board of Directors . A leader can make behavior CEO who is selfish, fraudulent , unethical , illegal or otherwise to the attention of other employees or the Board or , in the extreme , regulators , the media, or even the law enforcement ( Dyck et al. , 2010) authorities. In terms of incentives to monitor the CEO, the second captain not only has a fiduciary duty to provide important and accurate information information to the board , but also monitors the CEO .
In this study I do the following steps ….
• introduction.
• provides an overview of existing literature on the subject.
• explains the data, variables and methodology employed during empirical work.
• presents and discusses the findings of the study.
• Finally, briefly concludes the whole discussion.
According to Mallor, Barnes, Bowers, & Langvardt (2010) “modern corporation law emerged only in the last 200 years, ancestors of the modern corporation existed in the times of Hammurabi, ancient Greece, and the Roman Empire. As early as 1248 in France, privileges of incorporation were given to mercantile ventures to encourage investment for the benefit of society. In England, the corporate form was used extensively before the 16th century. In the late 18th century, general incorporation statutes emerged in the United States” (p. 1009).
Strong corporate governancethis company believes in order for a business to have strong performances they have to have good corporate governance. They strive to be transparent in their governance practices and policies. They also strive to be responsive to their shareholders while managing the Company for long-term success.
In contrast , the shareholder theory organisations or organisation's decision-makers only have the responsibility to their shareholders by increasing the organisation profits and should only make the decisions to increase as much as possib...
Corporate governance implies governing a company/organization by a set of rules, principles, systems and processes. It guides the company about how to achieve its vision in a way that benefits the company and provides long-term benefits to its stakeholders. In the corporate business context, stake-holders comprise board of directors, management, employees and with the rising awareness about Corporate Social Responsibility; it includes shareholders and society as well. The principles which...
Finding the perfect capital structure in terms of risk and reward can ensure a company meets shareholder expectations and protects a firm in times of recession. Capital structure refers to how a business puts its money to “work”. The two forms of capital structure are equity capital and debt capital. Both have their benefits and limitations. Striking that perfect balance between the two can mean the difference between thriving versus trying to survive.
Agency Theory or Principal Agent Theory is the relationship that involved the contractual link between the shareholders (the principals) that provide capital to the company and the management (agent) who runs the company. The principals will engage the agent to carry out some services on their behalf and would normally delegate some decision-making authority to the agents. However, as the number of shareholders and the complexity of operations grew, the agent, who had the expertise and essential knowledge to operate the business and company tend to increasingly gained effective control and put them in a position where they were prone to pursue their own interests instead of shareholder’s interest.
Jensen, M.C and Meckling, W.H (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360. Available on: http://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf. [Accessed on 20th April 2014].
Lazonick, W., & O'Sullivan, M. (2000). Maximizing shareholder value: a new ideology for corporate governance. Economy and Society, 29(1), 13-35. Retrieved from http://www.uml.edu/centers/cic/Research/Lazonick_Research/Older_Research/Business_Institutions/maximizing shareholder value.pdf
According to Investopedia, agency theory explains the relationship between principals and agents in business. The theory is based on two elements, the principals and the agents of principals. Principals are parties such as shareholders and agents of principals are parties such as company executives. Agency theory is mainly about resolving the problems that could occur in agency relationships. There are two problems that agency theory points out; they are 1.) Problems occurred when the goals of both the principals and agents are in any kind of conflict, and the principal is unable to do verification on what the agents are doing due to the difficulties faced; and 2.) Problems arise when there are differences in points of views and opinions on risks. Both principals and agents possess different tolerance for risks, and both of them may take different kinds of actions. Since agency problems present themselves all the time, the CFA Institute has promoted code of ethics to reduce agency problems. The codes are such as standard V: Investment Analysis, Recommendations, and Actions. Candidates must acquire a reasonable and adequate basis supported by appropriate research and investigation for every investment analysis, recommendation and actions. On top of that, candidates must use reasonable and undisturbed judgment in identifying factors that are at the utmost importance to every investment analysis, recommendations and actions. Having high professionalism in this field is very important because if misrepresentation relating to investment analysis, recommendations or actions might cause severe damage towards the outcome of any decision making. This would reduce agency problems where all parties acquire the same and most ex...
The Asian Financial Crisis which exposed the corporate governance weaknesses was a wake-up call for all the policymakers, standard setters as well as the companies (OECD, 2014). The parties that involved and affected from the crisis started to realize the importance of having strong corporate governance practices in their countries. Consequently, the Asian economies along with the OECD established the Asian Roundtable on Corporate Governance in 1999, in order to support the enhancement of corporate governance rules and practices (OECD, 2014).
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
The office of the Director of Corporate Enforcement (ODCE, 2015), Ireland defines Corporate Governance as “the system, principles and process by which organisations are directed and controlled. The principles underlying corporate governance are based on conducting the business with integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions and complying with all the laws of the land”. It is the system for protecting and advancing the shareholder’s interest by setting strategic direction for the firm and achieving them by electing and monitoring the capable management (Solomon, 2010). It is the process of protecting the stakes of various parties that have their interest attached with a company (Fernando, 2009). Corporate governance is the procedure through which the management of the company is achieving the goals of various stake holders (Becht, Macro, Patrick and Alisa,
Corporate governance is the set of guidelines that determines the control and organization of a particular company. The company’s board of directors is in charge of approving and reviewing changes to this set of formally established guidelines. Companies have to keep in mind the interests of multiple stakeholders, parties who have an interest in the company. Some of these stakeholders include customers, shareholders, management, and suppliers. Corporate governance’s focus is concentrated on the rights and obligations of three stakeholder groups in particular: the board of directors, management, and shareholders. Corporate governance determines how power is split between these three stakeholders. A company’s board of directors is the main stakeholder that influences the corporate governance of a company (Corporate Governance).
Corporate governance is the policies, rules and regulations, by which a corporation shapes the way corporate officers, managers, and stakeholders perform their duties to create wealth for the entity. According to Lipman (2006), good corporate governance helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization (p. 3). Most companies, whether formal or informal, have some type of corporate governance for the management to follow. Large companies will have a formal set of rules and regulations, while small companies frequently have spoken rules often due to lack time to form any type of formal policies. There is often no corporate governance with family owned companies.
...eve efficient resource allocation. Failure to achieve appropriate and efficient corporate governance could result in sub-optimal allocation of resources, abuses and theft by management, expropriation of outside shareholders and creditors, financial distress and even bankruptcy. While evaluating the role of corporate governance, it is imperative to also consider the levels of development of market institutions and other legal infrastructure including laws and enforcement that provide good standard for investor protection as well as ownership structures.