Session 7: Introduction and theories of Corporate Governance

Question 1

Definitions of corporate governance

Answer 1

Corporate governance is the process by which companies are directed and controlled.

Question 2

The basic board processes (Matrix)

Answer 2

Outward looking , Inward looking vs. Past focused - Future focused

Question 3

Corporate Governance theory - Principal(s) ↔ agent(s)

Answer 3

Whenever the owner of wealth (the principal) contracts with someone else (the agent) to manage his affairs the agency dilemma arises.

Question 4

Solutions for agency problem

Answer 4

– Demands for reporting and transparency
– Requirements for accountability and audit
– Independent directors

Question 5

Asymmetrical information

Answer 5

Directors know far more about the corporate situation than the shareholders.

Question 6

Transaction cost economics

Answer 6

• However, as a firm grows, there comes a point at which the external market becomes cheaper.
• Transaction cost economics focuses on the cost of enforcement or check and balance mechanisms, such as audit, information disclosure, independent outside directors, and board committees.

Question 7

Resource dependency theory

Answer 7

Die Direktoren sind als Grenzübergreifende Knoten der Netzwerke anzusehen und in der Lage das Geschäft zu seinem strategischen Umfeld zu verbinden.