Corporate Governance and Investor Protection Essay

772 Words Feb 6th, 2014 4 Pages
Investor Protection and Corporate Governance
Introduction:
This paper seeks to critically review the topic of corporate governance and its relation to the protection of investor rights and finances. The benefits of current corporate governance practices will be assessed as well as the disadvantages that exist in fully managing and mitigation the risks that investors face in the corporate financial environment. Additionally, the importance of the practice and implementation of corporate governance will be examined as a means of accurately demonstrating the overall merit and usefulness of corporate governance in today’s financial environment.
Investor Protection:
Defond & Hung, (2004) defined investor protection as the extent of
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(Shleifer & Vishny, 1997) identified corporate governance as the challenge of separating the management and finance sections of the firm and to ensure that the opportunities for managers to misappropriate the firms funds at the expense of the investors who supply the finance are minimised or nonexistent.
The origins of Corporate Governance:
Carlson, et al.,( 2004) suggested that the main factor driving the development of corporate governance was the occurrence of agency problems. The agency problem as defined in Carlson, et al.,( 2004) paper on the foundation of corporate governance states that “Managers of the corporation acts as agents for the principals/owners of the company. However, directors and executives may not always act in the shareholder’s best interests”. The study further suggested that managers have the tendency to pursue their own economic self interests instead of maximizing the wealth of the shareholders they represent. It was from this backdrop that corporate control systems were devised and implemented.

Why is Corporate Governance important in the Financial Sector:
Speak about agency theory and agency costs

Benefits of Corporate Governance:
McLean, Zhang, & Zhao (2012) in a study across forty-four (44) countries to determine how the existence and enforcement of investor laws protection affects the firms ability to attract external investment and capital, concluded that where investor protection legislation was

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