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Corporate Governance Fundamentals: Reference: Braendle/Wirl (2004), Corporate Governance Normen - Wege Aus Der

Corporate governance fundamentals have their origins in the analogy between governing nations and governing corporations, with relevance increasing over time. As corporations changed from voice to exit and ownership separated from control in the 400 years since their inception, agency problems have grown between managers and shareholders. There are competing perspectives on whether the focus of corporate governance should be shareholders or stakeholders, and on balancing short-term market pressures with long-term performance. Definitions of corporate governance center on addressing the agency problem through mechanisms like independent directors, while also considering incomplete contracts and multiple constituencies.

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Ahmed Haji
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54 views12 pages

Corporate Governance Fundamentals: Reference: Braendle/Wirl (2004), Corporate Governance Normen - Wege Aus Der

Corporate governance fundamentals have their origins in the analogy between governing nations and governing corporations, with relevance increasing over time. As corporations changed from voice to exit and ownership separated from control in the 400 years since their inception, agency problems have grown between managers and shareholders. There are competing perspectives on whether the focus of corporate governance should be shareholders or stakeholders, and on balancing short-term market pressures with long-term performance. Definitions of corporate governance center on addressing the agency problem through mechanisms like independent directors, while also considering incomplete contracts and multiple constituencies.

Uploaded by

Ahmed Haji
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Corporate governance fundamentals

Reference: Braendle/Wirl (2004), Corporate Governance Normen Wege aus der


Krise?, WISU Das Wirtschaftsstudium 7/04, 906-910 and Braendle (2004),
Unvollstndige Vertrge Bewertung und Lsungsanstze, WiSt
Wirtschaftswissenschaftliches Studium
1

Historical origins
Financial crisis of Enron, WorldCom and
Parmalat have heated up the discussion
Analogy between government of nations
or states and the governance of
corporations
As old as the history of companies itself
Especially relevant for corporations

The corporation
400th birthday
Change from voice to exit over time
Railroad industry and first stock
exchanges
Separation of ownership and control
Advancement of agency problem

Conceptual and theoretical


fundamentals

Shareholder vs. Stakeholder perspective


Finance

Markets provide restraints on managerial discretion

Myopic

market model

Encourage long term performance horizons

Abuse

(principal-agent) model

of executive power model

4 year terms for CEO, independent directors

Stakeholder

model

Social efficiency of economy

Definitions of corporate governace

Agency and stewardship theory

Agency and stewardship theory

In the narrower sense the P-A-problem is an


asymmetric information relationship, which could
be solved by complete contracts
Agency

costs

The Stewardship Theory assumes that


managers do not necessarily work only in their
personal interest
typical agency problem + conflicts between
majority- and minority shareholders + conflict
between shareholders and other stakeholders
8

Agency problems

Incomplete contracts and multiple


constituencies

Contracts between
managers and
shareholders remain
incomplete
Corporate Governance
Shareholders have the
greatest need of
protection
10

The prominent role of corporate


governance
The privatisation wave
Pension funds and other institutional
investors
Mergers and takeovers
Deregulation and capital market
integration
Economic crisis

11

Adverse selection and moral hazard

12

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