CORPORATE GOVERNANCE

Corporate Governance

Corporate Governance

Introduction

Corporate governance is the regulatory mechanism which is concerned with the action between the management. The mechanism also deals with the conflict resolution among a company's stakeholders. A corporate governance framework encourages the effective use of resources that focus on internal and external business structures and the monitoring of the actions between the management. The corporate governance structures vary as per the organizations all around the world. The aim of this mechanism is to adopt a holistic approach to introduce a variety of components and relationships in this framework. The corporate governance mechanism determines the condition of better understanding of the variables and functions under the domain (Hardi & Buti, 2012, pp. 101-117).

Global Financial Crisis

The global financial crisis created a great impact and a shock for the financial systems all over the globe. Its consequences are still felt globally. The current financial system is stated not to be stable, and it does not deliver as per the claims. The financial crisis mainly occurs when the assets of the institutions are overestimated or when the investors associated with these institutions try to cut loose the money. A financial crisis is often related to the concept of panic on the financial institutions. In this scenario, the investors all over the financial market place withdraw the investments or finances from the accounts. The expectations are that the values of the assets will decrease if they remain at the institutions. The financial crisis can lead to the economic recession or the term is also referred to as economic depression (Bollard & NG, 2012, pp. 57-66).

Agency Theory

The agency theory explains the relationship between the agents and principles involved in the business. The theory is important, yet controversial. This theory has been used for multiple domains in accounting, finance and economics. Agency theory is aimed to resolve problems that exist in the agency relationships. These relationships are among the shareholders and the executives. The problems occur when there is a difference in the attitudes or a conflict in the objectives. The theory offers unique insights for the information systems and is comparatively a valid perspective. It has been used to predict the strategic behavior of the management. As per the theory, the managers who are accountable for their utilization of resources have to organize them in a method that enhances the shareholder value. The aim must not be to increase their personal shares. This theory is a part of a group of theories derived from the economical literature (Shapiro, 2005, pp. 263-284). The theory is based on the principle that the agents have more knowledge and the ability to effectively monitor the interests.

Stewardship Theory

Stewardship theory deals with the situations in which the managers are associated with the motives aligned with their objectives rather than individual objectives. This theory is relatively new therefore the contribution has not yet been effectively established. The stewardship theory has been discussed in general terminologies and has attempted in underlying mechanisms and ...