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Tutorial 6 Answers

Tutorial 6 Answers - Tutorial 6 Answers 6.1 Explain what is...

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Tutorial 6 Answers 6.1. Explain what is meant by corporate governance and why it is needed. To have a good corporate governance system ensures that the corporation sets appropriate objectives  and then puts systems and structures in place to ensure those objectives which are set are met. It also  provides a means for persons both within and outside the corporation to be able to control and monitor  the activities of the corporation and its management.   With the increasing globalisation of business and competition for capital, companies that can provide  assurances of good corporate governance will have a competitive edge in the market place and  facilitate economic growth.  6.3 What are risks of poor corporate governance and the advantages of good corporate governance? Risks of poor corporate governance can be from: a) Managers making use of resources to benefit themselves. In some cases it may go as far to involve  fraud.  b) Corporations may take actions that shareholders may not consider desirable c) Corporations may ‘hide’ or provide ‘false’ information to shareholders to avoid consequences  d) Disparity between payments received by managers or corporations to their performance.
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Advantages of good corporate governance: a) Provides assurance that companies are properly managed b) Required for an efficient market c) Facilitates economic growth.  6.5 Explain the agency problems that arise in the manager-shareholder relationship. Agency problems arise between managers and shareholders because principals can be either  shareholders or lenders. Some of the problems are risk aversion, dividend retention and horizon  disparity.  (You should ensure that you are familiar with these three terms).   6.7 Identify the key areas addressed in corporate governance and provide examples of practices related to each of these areas. Explain how any individual practices identified help ensure good corporate governance. Corporate governance involves ensuring that the decisions made by those managing the  corporation are appropriate, and providing a means to monitor corporate activities and the  decision making itself.  It is primarily concerned with managing the relationship between the  shareholders, the key managers of the corporation (this is usually the Board of Directors), other  senior managers within the corporation, and other stakeholders Australian Stock Exchange 10 Principles of Corporate Governance: (There are now 8 principles, however the textbook indicates 10) 1. Lay solid foundations for management and oversight: Recognise and publish the respective roles and responsibilities of Board and management. 2. Structure the Board to add value:
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Tutorial 6 Answers - Tutorial 6 Answers 6.1 Explain what is...

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