The Context And Theory Of Corporate Governance

Corporate governance: “The set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.” (Cornett, Adair, & Nofsinger, 2016, p. 16).

Corporate governance is a set of actions used to handle the relationship between stakeholders by determining and controlling the strategic direction and performance of the organization. Corporate governance major concern is making sure that the strategic decisions are effective and that it paves the way towards strategic competitiveness. (Hitt, Ireland, Hoskisson, 2017, p. 310). In today’s corporation, the primary objective of corporate governance is to align top-level manager’s and stakeholders interest. That is why corporate governance is involved when there is a conflict of interest between with the owners, managers, and members of the board of directors (Hitt, Ireland, Hoskisson, 2017, p. 310-311).

Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to

Corporate governance can address agency problems, they are the rules that dictate the company’s behavior towards it’s directors, managers, employees, shareholders, creditors, competitors and community.

Corporate governance is a commonly used phrase to describe a company’s control mechanisms to ensure management is operating according to

Kluyver, C. (2013). A primer on corporate governance (2nd ed.). New York, NY: Business Expert Press.

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

Nowadays Corporation has become one of the very powerful institution around the world. They have reached everywhere across the globe with different sizes and capabilities. The governance of corporate has a major effect on economies. There is a huge loss of trust from shareholders and the market value is affected tremendously. Due to the globalization, the govern role has lessen which means more need for accountability. (Crane and Matten, 2007) Corporate governance has become an important factor in managing organizations in the current global and complex environment. Corporate governance a set of processes and structures for controlling and directing an organization. It constitutes a set of rules, which governs the relationships (Middle Eastern Finance and Economics - Issue 4, 2009) between management, shareholders and stakeholders (Ching 2006). Currently, due to the corporate failures corporate are scared to admit it. It includes various and all kinds of organizations and its definition could cover various economical and non-economic activities. It is important to keep in mind the influences firm have and by which its effected in order to have better understanding of governance. In this

Corporate governance refers to ‘the ways suppliers of finance to corporations assure themselves of getting return on their investment’ (Shleifer and Vishny, 1997: 736). Corporate governance discusses the set of systems, principles and processes by which a

The agency theory explores risk sharing among individuals or groups. Risk sharing situation raises a problem when co-operating parties have different attitudes towards risk. Agency theory broadens the risk-sharing concept to include the agency problem which occurs when co-operating parties have different goals and there is division of labour (Kathleen. 1989). According to an audit quality forum (2005), an agency relationship arises when a principal (for example, an owner) engage another person as their agent (or steward) to perform a service on their behalf. This leads to delegation of some duties and responsibilities to the agent. Consequently, the principal has to place some trust in the agent hoping that they will act in their best interests.

The OECD Principles of Corporate Governance states that: "Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are

The corporate sector constitutes a dominant part of industry. Financial sector reforms along with the development of the capital market are changing the structure of corporate financing. This has led to a separation of ownership and the management and has given rise to the issue of corporate governance, among others. Corporate governance essentially deals with the ways of governing the corporations so as to improve their financial performance. The need for governance arises mainly due

Corporate governance can be defined as the process, customs, laws by which the affairs of a company are managed and controlled it also

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a

Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the