Corporate Governance - Systemic Problems of Corporate Governance

Systemic Problems of Corporate Governance

  • Demand for information: In order to influence the directors, the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.
  • Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors.
  • Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.

Read more about this topic:  Corporate Governance

Famous quotes containing the words problems, corporate and/or governance:

    “I was a wonderful parent before I had children. I was an expert on why everyone else was having problems with theirs. Then I had three of my own.”
    —Adele Faber (20th century)

    “The generation of women before us who rushed to fill the corporate ranks altered our expectations of what working motherhood could be, tempered our ambition, and exploded the supermom myth many of us held dear.”
    —Melinda M. Marshall (20th century)

    “He yaf me al the bridel in myn hand,
    To han the governance of hous and land,
    And of his tonge and his hand also;”
    —Geoffrey Chaucer (1340?–1400)