...capital structure puzzle: UK evidence. The Journal of Risk Finance, 12 (4), 329- 338. This essay will summarise and critically review the report of Al-Najjar and Hussainey (2011) in which the effects of potential drivers of corporate capital structure are differing for three different definitions of capital structure. The article of Al-Najjar and Hussainey is a meaning but problematic piece of research. This essay aims to critically analyse the strengths and weaknesses of authors’ arguments and mainly focuses on the introduction, theoretical background, hypothesis, empirical tests, and result. Summary Al-Najjar and Hussainey found a capital structure puzzle which is involved with different definition of capital structure and determinants of corporate capital structure. They collected a sample data of 379 non-financial firms in the UK from 1991 to 2002, and investigated firms’ corporate characteristics (including firm growth rate, risk level, firm size, asset tangibility, and firm’s profitability) and corporate governance elements (including non-executive directors and board size) which are the potential drivers of UK firms’ capital structure. They utilised the fixed panel models and random effect Tobit models to analyse statistics. There are three definitions of capital structure: 1. Long-term debt to equity ratio = Total loan / (equity capital + reserves – total intangibles) 2. Debt to capital ratio = (Preference capital + total...
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...Corporate Governance | Should accountability, transparency and effective risk management be regarded as the most important principles of Corporate Governance? | | What actually corporate governance is and how it actually affects a corporation? What are the main players playing a part in corporate governance? These are the questions one must understand in order to see the role of principles like accountability, transparency and effective risk management in corporate governance. So corporate governance is defined as “the relationship between a company’s shareholders, directors, and management as defined by the corporate charter, bylaws, formal policy, and rule of law”. (Gallegos, 2004, p. 37). This definition clearly shows the relationship of a company’s shareholder, directors and management. But this definition is only limited to what are the main players of corporate governance. In order to understand its impact on a corporation or company, ASX defines it as, “Corporate governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized. Good corporate governance structures encourage companies to create value (through entrepreneurism, innovation, development and exploration) and provide accountability and control systems commensurate with the risks involved’. (ASX Principles of Good Corporate Governance and Best Practices...
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...The Japanese corporate governance system differs vastly from the US system. Discuss corporate governance issues that may arise under the Japanese Keiretsu system from the perspective of a).financiers, b). Owners, c). Suppliers, d). Employees. Corporate Governance System in Japan (1) Definition of Corporate Governance Corporate governance deals with the agency problem: the separation of management and finance. This basic agency problem suggests a possible definition of corporate governance as addressing both an adverse selection and a moral hazard problem. The traditional definition of corporate governance was such a narrow view as Shleifer and Vishny (1997) mentioned that the ways in which the suppliers of finance to corporations assure themselves of getting a return on their investment. Recent trend, however, express doubts on the definition that solely focuses on shareholder value. EPA (1998) shows the constituents of corporate governance as follows: Table 1: Constituents of corporate governance Stakeholders | Interest | Desired Management | Shareholders | Maximize profitsAsset protection | Profitable managementSound management | Investors | Efficient investment | Exploitation of profitable investment | Creditors | Protection of receivables | Sound management | Main bank | Corporate growth | Sound managementPursuit of productivity growth | Employees | Pay raiseSecure employment RelationshipPromotion | Profitable managementSound managementSustainable...
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...Corporate Governance is a Journey not a Destination. Discuss. Submission by Patricia Mbatia Definition of Corporate Governance: The system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company - these include its shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure. Corporate governance became a pressing global issue following the 2002 introduction of the Sarbanes-Oxley Act in the U.S., which was ushered in to restore public confidence in companies and markets after accounting fraud bankrupted high-profile companies such as Enron and WorldCom. Most companies strive to have a high level of corporate governance. These days, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior and sound corporate governance practices. These programs are ongoing and hence form the journey to good corporate governance. Corporate governance stands for responsible business management geared towards long-term value creation. Views of corporate governance are shifting from mere obligation...
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...Definitions: Contents Definitions: 1 OECD Definition of Corporate Governance: 1 Financial Times Definition of Corporate Governance: 1 Cadbury Report Definition of Corporate Governance: 1 BusinessDictionary.com Definition of Corporate Governance: 1 Why is it important? 3 Why was it in the news recently? 3 Literature Review: 4 Agency Theory: 5 STAKEHOLDER THEORY 7 Stewardship theory: 10 Motivation: 10 Identification: 10 Policies: 10 Consequences: 11 Theory- Resource Dependence: 11 Principles: 12 Benefits of Corporate Governance: 13 Definition of 'Agency Problem': 14 Investopedia explains 'Agency Problem': 14 Agency Relationship and Agency Costs: 14 Conclusion: 23 Agency Problems Are Mitigated by Good Systems of Corporate Governance 23 Legal and Regulatory Requirements: 23 Compensation Plans: 24 Board of Directors: 24 Monitoring: 25 Takeovers: 25 Shareholder Pressure: 25 OECD Definition of Corporate Governance: "OECD defines corporate governance as follows: “Procedures and processes according to which an organisation is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organisation – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making." Financial Times Definition of Corporate Governance: "How a company is...
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...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 the laws that protect investors’ rights and the strength of the legal institutions that facilitate the enforcement of those laws where they exist. This definition was further expanded by La Porta et al (2000) who postulated strong investor protection laws and similarly robust enforcement institutions were the main contributors to markets that promoted investment simply because the rights of the investors were seen to be adequately protected and the risk of exapropriation by managment was greatly reduced. It was therefore seen as critical that the protection of investor’s rights was necessary as minority shareholders were often exploited by creditors and majority shareholders extensively. La Porta, et al., (2000) further posited that, in the...
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...Manual of Corporate Governance SEC Securities and Exchange Commission of Pakistan This manual is for reference only and does not constitute any legal requirement on companies, their officers, directors or auditors. This manual may be used for guidance and compliance must be ensured with the provisions of applicable laws and regulations. CONTENTS I. II. INTRODUCTION WHAT IS CORPORATE GOVERNANCE? (i) The Background (ii) Definition of Corporate Governance (iii) The Benefits of Corporate Governance (iv) The Pakistani Corporation (v) The Origins of Corporate Governance in Pakistan THE NEED FOR CORPORATE GOVERNANCE THE STAKEHOLDERS (i) General (ii) Shareholders (iii) Directors (iv) Employees (v) Creditors PROMOTING REFORM AND SHAREHOLDER ACTIVISM ROLE AND RESPONSIBILITIES OF DIRECTORS AND MANAGERS (i) Directors and Managers Distinguished (ii) Appointment and Proceedings of Directors (iii) Fiduciary Duties (iv) Powers and Responsibilities of Directors (v) Liability of Directors (vi) Executive and the Non-executive Directors (vii) The CEO 1 3 3 4 7 8 10 12 17 17 19 20 20 21 22 26 26 26 32 38 42 42 45 III. IV. V. VI. (viii) (ix) (x) (xi) The Company Secretary The CFO Internal Control System Reporting Requirements 47 49 49 50 VII. SCRUTINIZING FINANCIAL STATEMENTS - WHAT EVERY DIRECTOR SHOULD KNOW (i) General (ii) Liability of Directors (iii) Preparation of Financial Statements (iv) Tools for Directors' Review (v) How to Prevent Misleading and Fraudulent...
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...To describe corporate governance as a subject of topical interest would be masterly understatement. What had already become a hot topic in Australia during 2001 has since burst out across the world, involving the direct intervention of the President of the United States. I’d say that Monash University has got its timing pretty right. The interesting question is whether this initiative would have received any interest or support in Australia two years ago. There is little doubt that by the end of the 1990s the business community was becoming wearied by the concept of corporate governance, seeing it as somewhat irrelevant, even passé: a response to the no longer relevant excesses of the 1980s. Many years of sustained economic growth, and Australia’s remarkable survival of the financial crisis in Asia, had led to a period of complacency about corporate governance - over time it became institutionalised and compliance focused, more driven by process and legal liability management for corporate officers than by notions of shareholder protection and wealth creation. In retrospect this self-confidence looks particularly short-sighted. At the very time when most of Asia, supported by the World Bank and the IMF, was focussed on the importance of corporate governance and institution building, the more developed economies (including Australia) assumed that their existing standards were adequate. We were, I think, partly lulled by the knowledge that some of the key economic ...
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...The issue of corporate social responsibility has got a lot of attention in the business and political world since the early 1990’s and the major reason behind this was corporate scandals. Organizations had started to realize that the basis on which they were achieving economic growth was unsustainable and hence there was a need to develop a process which would intend at balancing economic growth with environmental sustainability and societal expectations. In fact the origin of corporate social responsibility can be found in the 1950s and 60s whereby successful companies were trying to link corporate social responsibility to the power that business holds in society. The theoretical progresses were subdivided in ethical and accountability and the stakeholder approach to strategic management. CSR can be distinguished from the three terms which are included in its designation phrase and these words are; ‘Corporate’, ‘social’ and ‘responsibility’. Hence CSR can be explained as being the responsibilities that a company undertakes for the society within which it carry out its operations. To be specific, CSR require a business to identify its stakeholders and include their needs and values in the tactical day to day decision making process of the company. Consequently the society within which a business function and which identify the number of stakeholder to which the organization owe a responsibility can be broad depending on the type industry within which it operate. The different...
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...49 (the “New Clause” or the “Clause”)[2]. The New Clause, which will be effective from 1 October 2014, serves the following objectives: align the provisions of Listing Agreement with the provisions of the newly enacted Companies Act, 2013 and also provide additional requirements to strengthen the corporate governance framework for listed companies in India. Most of the requirements under the New Clause are in line with the changes brought about in corporate governance by the Companies Act 2013. However, certain requirement under the New Clause goes a step further and imposes more stringent requirements of corporate governance to listed companies. The New Clause is based on the principle of ensuring equitable treatment to all shareholders and recognising the rights of all stakeholders in the company. The New Clause is attempting to achieve this object by setting up an effective corporate governance frame work within the company and providing for timely and accurate disclosures. The key aspects of the New Clause are discussed below: Independent Directors The New Clause confers greater power and responsibility on the independent directors to on matters relating to corporate governance. The Clause incorporates methods to ensure professional, independent and transparent approach for selection and appointment of independent directors. The Clause retains the requirement of having at least one third of directors as independent directors if the chairman of the board of directors is...
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...Literature review: Corporate governance: Corporate governance last few decade and continuously affairs some large scandals in USA , ASIA and other countries also effects in these crises. Some organization insolvency or some are bankruptcy that’s all the weak corporate governance. in the last there is a huge improvement coming in the corporate governance and there is a huge improvement in intellectual capital. Intellectual capital is a knowledge base economy such is land, labor and capital. Nowadays intellectual capital and corporate governance is a key of success of any organization and especially that organization that are knowledge base organization. (Quinn et al., 1996), Corporate governance is...
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...3. Introduction Corporate Governance has become a subject in its own right over the past decade but Corporate Governance issues are as not new- there have been tensions from the beginning as the case of Salomon v Salomon [1897] illustrates. Despite the longevity the phrase ` corporate governance ` is somewhat `MALLEABLE`- i.e almost every author or book on the subject offers a different view of what the phrase means. In the broadest sense, it means the question of who should own and control the company and in its narrowest; it purely means the relationship between the shareholders and Directors. The importance o Corporate Governance (CG) can best be understood in the context of how large modern companies operate. Owing to the separation of ownership and management, there is a need to establish appropriate control monitoring procedures to ensure that management can effectively utilise entrusted resources to add values to business owners. The owners ( the investors/ shareholders) will not usually be involved in the planning and control of the business of the companies and there is a risk than the managers( Directors) may pursue their own interests even at the expense of the shareholders. In other words – conflicts of interest can arise. Moreover, there are a number of different interested parties/ stakeholders- e.g between controlling large shareholders and minority shareholders, creditors and shareholders, shareholders and employees. Thus CG can be defined as “a set of...
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...Ethics February 05th, 2016 Best Practices of Corporate Governance The system of rules, practices and processes by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community). The corporate governance framework consists of explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights, and rewards, procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles, and procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances. The field of corporate governance is at a crossroads. Our knowledge of what we know about the efficacy of corporate governance mechanisms is rivalled by what we do not know. Good corporate governance helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization. It is also good business. A good corporate governance image enhances the reputation of the organization and makes it more attractive to customers, investors, suppliers and in the case of non-profit organization contributors. The best practices of corporate governance are in the structure of the board of directors, the operation of the board of directors and the other corporate governance practices. When it comes to the structure...
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...Whole Foods Market [ACTG 4760 Case Project 1] [Xiaofei Liao] History of Corporate Governance at the Firm Whole Foods Market was founded in Austin, Texas. 1980, with merely 19 people. There are four founders of the company, John Mackey, Rene Lawson Hardy, Craig Weller and Mark Skiles. John and Renee dropout from college and borrowed a total of $45,000 from their families and friends to open Saferway Natural Foods. Two years later, the couple partnered with Craig and Mark, owners of Clarksville Natural Grocery, to merge Saferway with their Clarksville. This action resulted the opening of the original Whole Foods Market in 1980. Whole Foods goes public in January 1992, trading shares on the NASDAQ Stock Market as WFM. It has become a public company for 23 years since then. The Appendix A shows a list of key dates in the development history of the company. Today, there are over 410 stores of Whole Foods throughout the United States, U.K., and Canada. There are more than 88,000 team members and the company is awarded as “100 Best Companies to Work For” by FORTUNE magazine for 18 years since the list’s inception. It listed 218 in the Fortune 500 list and all the accomplishments by Whole Foods ties closely with its strong corporate governance policies, including the Board, its Committees and the individual directors. Roles and recent challenges of the Board The Board of Directors is responsible for monitoring management’s operation...
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...Chapter 2 Corporate Social Responsibility, Corporate Governance and Corporate Regulation 2.1 Introduction CSR is increasingly an essential issue for companies.1 It is a complex and multidimensional organisational phenomenon that is understood as the scope for which, and the ways in which, an organisation is consciously responsible for its actions and non-actions and their impact on its stakeholders. It represents not just a change to the commercial setting in which individual companies operates, but also a pragmatic response of a company to its consumers and society.2 It is increasingly being understood as a means by which companies may endeavour to achieve a balance between their efforts to generate profits and the societies that they impact in these efforts.3 This chapter discusses these issues. First, it describes CSR and its core principles. Second, it describes CG and narrates CG’s convergence with CSR. Third, it highlights how different economies are incorporating CSR notions in their corporate regulation. 1 Jeremy Moon and David Vogel, ‘Corporate Social Responsibility, Government, and Civil Society’ in Andrew Crane et al. (eds), Oxford Handbook of Corporate Social Responsibility (2008) 303; David Vogel, The Market for Virtue: The Potential and Limits of Corporate Social Responsibility (2005); Nada K Kakabadse, Cecile Rozuel and Linda Lee-Davies, ‘Corporate Social Responsibility and Stakeholder Approach: A Conceptual Review’ (2005) 1(4) International ...
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