Chapter 9 - Theories and Philosophies of Corporate...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Theories and Philosophies of Corporate Governance The Agency Dilemma - Arrival of joint stock increase in the number of principals and agents - Interests of shareholders were no longer homogeneous - As listed companies grew and their shareholders became more diverse, the separation between owners and directors magnified and powers shifted towards the directors - Responses to the agency dilemma: o Reporting transparency o Accountability o Audit o Independent directors - Stock borrowing possible to acquire voting rights in a company without owning or investing in its stocks - Agency problem is not limited to relations between investors in listed companies and their agents problems might also arise between directors and employees, private companies, Not-for profit organizations - Wherever there is a separation between the members and the governing body agency problem - Whenever responsibility for activities and assets are delegated by those in the principal position to those in the agent situation agency dilemma Agency Theory - AT looks at CG practices and behavior through the lens of the agency dilemma - Theory perceives the governance relationship as a contract between shareholder (the principal) and director (the agent) - Trust involves an agreement between parties with asymmetrical access to information - View CG at the level of the firm, concerned with the relationships between owners and directors - Focus on shareholder <-> director relationship - Jensen and Meckling: Agency theory involves a contract under which one or more persons engage another person to perform some service on their behalf which includes delegating some decision making authority to the agent. - Agency problems: o Directors may have different views regarding corporate risk – money they are investing is not their own money o Asymmetrical access to information - Looking at CG through the agency lens enables researchers to explore relationship between governance processes and corporate performance - Focus: o Level of shareholders and boards as entities Does Good Corporate Governance Produce Better Corporate Performance? -
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 11/10/2011.

Page1 / 4

Chapter 9 - Theories and Philosophies of Corporate...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online