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Tuesday 6 September 2011

Why Corporate Governance is important?

Corporate governance refers to the structures and processes for the direction and control of companies Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.

WHY IS CORPORATE GOVERNANCE IMPORTANT?

Corporate Governance is important especially for emerging market countries. It  improves and serves a number of important public policy objectives. Good corporate governance reduces emerging market vulnerability to financial crises, reinforces property rights, reduces transaction costs and the cost of capital, and leads to capital market development. Weak corporate governance frameworks reduce investor confidence, and can discourage outside investment. Also, as pension funds continue to invest more in equity markets, good corporate governance is crucial for preserving retirement savings. Over the past several years, the importance of corporate governance has been highlighted by an increasing body of academic research. Studies have shown that good corporate governance practices have led to significant increases in economic value added (EVA) of firms, higher productivity, and lower risk of systemic financial failures for countries.


Source: World Bank  Report on the observance of Standards and Codes of Corporate Governance

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