The Context And Theory Of Corporate Governance

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01- The context and theory of corporate governance 1.1 The meaning and purpose of corporate governance Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed. Corporate governance has also been more narrowly defined as "a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby, mitigating agency risks which may stem from the misdeeds of corporate officers. Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation…show more content…
1.3 The development of corporate governance and corporate governance theory Corporate governance is a relatively new area and its development has been affected by theories from a number of disciplines, including finance, economics, accounting, law, management, and organisational behavior. Agency theory has probably affected the development of the corporate governance framework the most. Agency theory identifies the agency relationship where one party, the principal, delegates work to another party, the agent. In the context of a corporation, the owners are the principal and the directors are the agent. In addition, there are other theories that have affected the development of corporate governance, which include: transaction costs economics, stakeholder theory, and stewardship theory. The development of corporate governance is a global occurrence and, as such, is a complex area including legal, cultural, ownership, and other structural differences. Therefore, some theories may be more appropriate and relevant to some countries than others. 1.4 Theories of corporate governance There are a range of theories in corporate governance, such theories address the cause and effect of variables.  Agency- Identifies the agency relationship where one party, the principal, delegates work to another party, the agent. In the context of a
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