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Survey of Corporate governance - Coggle Diagram
Survey of Corporate governance
Corporate governance deals with how investors assure themselves a return on their investment
Advanced countries has solved the problem
The mechanism are economic and legal institutions that can b altered through political process
Legal Protection
Investors get control rights in exchange
differences in corporate governance arsis due to differences in legal obligations
most important legal right shareholders have is
right to vote
problems with voting rights
managers might intervene in voting process
directors may not represent shareholders interests
voting rights are supplemented by duty of loyalty because of investment being sunk
Managers have a duty to act in shareholders interests
duty of loyalty involves restrictions on managerial self-dealing
Large investors
large shareholders
takeovers
large creditors
Large shareholders
Address agency problem as they have general interest in profit maximization and enough control over assets
Large shareholders are associated with a higher turnover of directors
they are more likely to replace managers after a poor performance
enough voting power to put pressure on management
their power depend on the legal protection of their votes
Takeovers
hostile takeovers
acquiring firm can change the management of the target firm
takeover firms typically increase value of both firms
problems
expensive
acquiring firm has to pay expected increase in profits to target firm shareholders.
increase agency costs
if bidding management overpays for acquisition
require capital mkt
takeovers require a liquid capital mkt for access to vast amount of funds
opposed by managerial lobbies
Large creditors
power in the various control rights they have
they lend in short term so firms have to keep coming back
advantage is that they rely on simple legal interventions which are suitable for even poor informed courts
Creditors rights
right to grab assets so serve as collateral
right to liquidate company assets when debt is not paid
right to remove managers during reorganization