CG presentation - Theories of Corporate Governance Group...

Theories of Corporate
Governance
Group members
Aziz Ahmed Khan
Ibrahim Mir
Ahmed Shaheer
Munaf khan

Three theories

Agency theory

Transaction cost theory

Stake holder theory

Agency Theory

First time exposited by Alchain and
Demsetz (1972)

Further developed by Jensen and
Meckling (1976)

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


Agents should make decision in
principal’s interest. But sometimes
they are self centered

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”

Contd..

The theorists suggest that managers in
organizations have a network of
relationships to serve:
Suppliers
Employees
Business Partners

Figure: The Stakeholder Model (Donaldson and