Corporate Governance

Corporate Governance - CORPORATEGOVERNANCE Samir M....

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    CORPORATE GOVERNANCE Samir M. El-Gazzar, PhD KPMG Professor of Accounting Lubin School of Business, Pace University, NY, NY 10038 selgazzar@pace.edu (212) 618-6423 * This presentation is adopted from my lecture notes to the Doctoral and MBA students in Financial Reporting and Capital Markets at Pace University .
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Corporate Governance (CG) ► Definition of Corporate Governance ► The Agency-Principal Conflict ► Current Practices ► Corporate Failures and Accounting Scandals: 2000 (Market Crash, Corporate Failure: e.g., Enron, Tyco, WorldCom . .etc). Arthur Anderson Out of Business. 2008 (Real-estate & Financial sector Failures: Stock Market Crash) ► Validity of Current CG Practices ► Future Directions
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Nature and Definition of CG WHAT AND WHY IS CORPORATE GOVERNANCE (CG ) ? The Answer Depends on Theory of the Firm Entrustment of Economic Resources Under Command O Management Shareholders Creditors Employees Government Consumers Capital Capital Labor Protection Survival Management Agency Theory / Conflict of Interests THE FIRM
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The Agency-Principal Conflict Corporate Governance: The “Common Good” Philosophy CG IS THE SYSTEM AND ALL NEEDED MECHNISMS TO ACHIEVE ORGANIZATINAL GOALS, MAINTAIN BALANCE BETWEEN THE DIFFERENT STAKEHOLDERS IN A CORPORATION, ASSURE EFFECTIVENESS OF OPERATIONAL AND INTERNAL CONTROLS, SHARING/BALANCING OF POWER IN DECISION MAKING, AND TRANSPARENCY AND INTEGRITY OF FINANCIAL REPORTING TO OUTESIDE STAKEHOLDERS.
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CG: Renewed Interest CG OLD PHILOSOPHY WITH RENEWED INTEREST . Renewed Interest 2001/2002 SUDDEN CORPORATE FAILTURE OF MAJOR COMPANIES (e.g., Enron, WorldCom, Tyco). INCREASED/ FREQUENT FINANCIAL IRREGULARTIES, where companies restate their financial statements for major frauds/errors. MARKET BUBLE. Recent Collapse of the Financial Sector (Citigroup, AIG,…) Historical Background : SEPARATION OF: OWNERSHIP MANAGEMENT CONFLICT OF INTEREST ASYMMETRY OF INFORMATION (AGENCY PROBLEM)
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A. ANALYTICAL SOLUTIONS (MATHEMATICAL MODELING: MANAGEMENT ACCOUNTING / FINANCE LITERATURE) OPTIMAL CONTRACTS BETWEEN MANAGEMENT AND SHAREHOLDERS. LACKS APPLICABILITY/ ENVORCEMENT DOES NOT LEND ITSELF TO EMPIRICAL VALIDATION . B. PRACTICAL SOLUTIONS ALIGNE/TIE MANAGEMENT’S INTEREST TO THOSE OF SHAREHOLDERS. (STOCK OPTIONS, MARKET-BASED PERFORMANCE)
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Corporate Governance - CORPORATEGOVERNANCE Samir M....

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