6 - MARKET FOR CORPORATE CONTROL & SECURITY REGULATION

Question 1

A well-functioning governance system consists of..

Answer 1

1. Bord of Directors
2. External Auditors
3. Disciplining Mechanisms ( Legal, Regulatory, and Market Driven) - that influence management to act in the interest of shareholders

Question 2

What are some Disciplinary Mechanisms?

Answer 2

Disciplinary Mechanism - to influence management to act in the interest of shareholders.

1. Labor Market (Poor performance CEO Terminated)
2. Capital Market (Failure = Higher Cost of Capital)
3. Regulatory Environment (Violation lead to litigation)
4. Market for Corporate Control (Pressures the CEO to perform, risk of sale of company)