CG presentation - Theories of Corporate Governance Group...

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Theories of Corporate Governance Group members Aziz Ahmed Khan Ibrahim Mir Ahmed Shaheer Munaf khan
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Three theories Agency theory Transaction cost theory Stake holder theory
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Agency Theory First time exposited by Alchain and Demsetz (1972) Further developed by Jensen and Meckling (1976)
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Definition The relationship of “PRINCIPALS” and ”AGENTS” Principals are shareholders Agents are executes or company management This theory separates the owners and mangers of the company
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Agents should make decision in principal’s interest. But sometimes they are self centered
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Stakeholder Theory This theory was embedded in the management discipline in 1970 “Any group or individual who can affect or is affected by the achievement of the organization’s objectives”
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Contd. . The theorists suggest that managers in organizations have a network of relationships to serve: Suppliers Employees Business Partners
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Figure: The Stakeholder Model (Donaldson and
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CG presentation - Theories of Corporate Governance Group...

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