Strong corporate governance maintains investors

  • Kenyatta University
  • BAC 314
  • Notes
  • alvinletian005
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The Legal Environment Today
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Chapter 3 / Exercise 05
The Legal Environment Today
Cross/Miller
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Strong corporate governance maintains investors‘ confidence, as a result of which, company can raise capital efficiently and effectively. E.g Uchumi supermaket Good corporate governance also minimizes wastages, corruption, risks and mismanagement. It helps in brand formation and development e.g kengen,Equity, Safaricom etc It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization
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The Legal Environment Today
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Chapter 3 / Exercise 05
The Legal Environment Today
Cross/Miller
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13 There is a positive impact on the share price EABL,Kengen,Equity It lowers the cost of capital since firms can access debt finance which is cheaper compared to equity finance Good corporate governance ensures corporate success and economic growth CHALLENGES FACED IN THE IMPLEMENTION OF GOOD CORPORATE GOVERNANCE PRINCIPLES A country can overcome the effects of bad corporate governance to achieve success only when there would be community mobilization, stakeholder engagement and participation and the accelerated creation of wealth within an environment where all stakeholders are convinced of fairness, accountability, transparency and responsibility. Some of the challenges include: 4.1 Family owned businesses /state owned corporations According to a study by Gatamah, (2011) on; ―launching corporate governance in Africa with an emphasis on Kenya‖, the business commu nity is comprised mainly of family or small private companies, state-owned corporations, cooperatives and co-operative societies as well as other community-based organizations not mentioning other informal sector undertakings. In most of these firms, there is no separation of ownership and control. E.g CMC company 4.2 Lack of integrity Bad corporate governance can be brought by lack of integrity on the selection criteria for choosing leaders and managers who run corporations since in Africa most business leaders are imposed on people according to their political affiliation. These leaders may lack experience, appropriate training and proper qualifications. Thus the need to re-emphasizes the importance of integrity when running business ventures. E.g board independence 4.3 Lack of formulated principles of good corporate governance Previous studies have reviewed that, there is still lack of continental formulated principles of good corporate governance that are to be identified as African Standards so as to master conflicts of interests with overseas investors.
14 Kenya and Africa in general has been greatly affected by imported culture and principles on corporate governance. These have hindered progress towards attaining good corporate governance practices due to uniformity of two operating environments‘ 4.4 Lack of effective and sound regulatory framework Lack of an effective and sound regulatory framework and a lack of public governance have imparted more pressure on businesses through operating in a non-conducive environment that discourage sustainable development.

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