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Reasons for the Increasing Importance of Corporate Governance and...

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Reasons for the Increasing Importance of Corporate Governance and Benefits of Good Corporate Governance

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  • June 2012
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Discuss the reasons for motivating the increasing interest in corporate governance and the benefits of good corporate governance

Corporate governance is defined by the OECD principles as the relationship between management of a company, its shareholders, its board and other stakeholders. It is a system which is used for the purpose of controlling and directing the companies. Corporate governance is not a new concept but it has got popularity in the last few decades due to various crises such as: East Asian crisis of the late 1990s and various other fraudulent activities in the corporate world. Amongst the major reasons for the increasing interest in corporate governance are the following needs;

Need for Stability of Stock Prices
Stability of stock prices is one of the important factors for the investors to predict the future performance of a company or organization. Corporate governance has great impact on the efficiency of stock markets. For example, in the Asian crisis in 1997, poor corporate governance influenced the stock markets efficiency to the large extent Sabri (2007). This stability is only possible with the help of good corporate governance. Investors are always attracted towards well governed companies because such companies adopt transparent governance policies and have better financial accountability and higher profit margins. There is a worldwide effort to improve the corporate governance and insure greater shareholder accountability and corporate transparency, Solomon (2005). Therefore, those organizations which are seeking new funds for businesses must ensure good corporate governance in place. Stock prices stability shows the level of risk for investment. Investors will only invest if they undertake appropriate risk for their investment.

Need to Attract a Talented Workforce
Talented workforce is a human capital and is considered as competitive advantage by the organizations. The ability of a company to attract and hold good people is...

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