The Two Main Theories that Govern Corporate Governance Principles

3038 Words Feb 22nd, 2018 12 Pages
Since then, both academicians and practitioners tried to found the most suitable corporate governance framework that would enhance the companies’ value and would benefit the society as a whole. The difficulties of several apparently prior successful banks (such as Anglo Irish Bank, Northern Rock and Royal Bank of Scotland (RBS)) during the financial crisis reminded us that this dispute is far from over.
This paper examines the two main theories that govern the corporate governance principles and looks at which one of them leads to greater company performance: shareholder theory (Agency theory) or the stakeholder theory? There are many definitions of company performance, both financial and nonfinancial. This analysis assumes increasing share value and therefore the market value as a company performance appraisal tool. Finally, the theories are examined from the ethical point of view and its impact on the firms’ shares worth.

What evidence is there to show that ‘good’ corporate governance can improve firm performance?

Good corporate governance is a vital tool in enhancing market trust and promoting more secure, long-term investments.
Shleifer and Vishny (1997) describe corporate governance as a mechanism that addresses the conducts in which lenders to companies guarantee themselves of receiving a…
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