Summary: Business Valuation And Corporate Governance

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• 1 College 1

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• Why is corporate governance important?

  • It ensures good decision-making: Good management, good investments.
  • Creates checks
  • It balances and prevents abuse of power
  • It is crucial for corporate performance, economic efficiency, and ultimately social welfare.

• Where do corporate governance issues come from?

  • Agency problems
    
  • Conflict of interests

• What is meant with corporate governance mechanisms?

  These are the instruments which stimulate managers to align their own interests with those of other stakeholders while discouraging them to pursue their own goals

• What are the three forms of corporate governance mechanisms?

  • Internal (Firm-oriented) mechanisms
    
  • Board of Directors, ownership, remuneration
  • External (Market-oriented) Mechanisms
  • Capital market, Debt market, Takeover market, Labour, market, Product market, regulation
  • Informal (Social) Governance mechanisms (These mechanisms complement formal ones)
  • Norms, Ethics, Codes, Reputation

• Corporate governance mechanisms can be structured in a table. How does this table look like?

  By adding Legal, Economic and Social.

• 8 1. Claessens, S. and Yurtoglu, B. (2013). Corporate governance in emerging markets: A survey. Emerging Markets Review 15, 1-33.

• What are the mainfindings of the article about corporate governance in emerging markets?

  • Better corporate governance benefits firms through greater access to financing, lower cost of capital, better performance and more favorable treatment of all stakeholders.
    
  • Voluntary and market corporate governance mechanisms have less effect when a country's governance system is weak
  • Better corporate governance leads to higher returns on equity and greater efficiency.

• 9 2. Douma, S., George, R. and Kabir, R. (2006). Foreign and domestic ownership, business groups and firm performance: evidence from a large emerging market. Strategic Management Journal 27, 637-657.

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• What is resource-based theory

  Competitive advantage is based on the possession of tangible and intangible resources which are difficult or costly for other firms to obtain.

• What is the multi-thoretic perspective?

  In view of the aforementioned inadequacies ofa unitary perspective, we adopt a multi-theoretic view in this paper by taking recourse to elements of agency, resource-based, and institutional theories to formulate a more holistic perspective in examining the impact of ownership structure on firm performance.

• 10 3. aggarwal 2011

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• What are the mainfindings of the article

  Especially institutional investors from common law (Law with a Jury US)countries improve corporate governance in civil law (is a codified Law) countries

• Is it more likely that a firm with a higher or a lower institutional ownership to terminate poorly performing CEOs?

  Firms with higher institutional ownership are more likely to terminate poorly performing Chief Executive Officers (CEOs) and exhibit improvements in valuation over time. Our results suggest that international portfolio investment by institutional investors promotes good corporate governance practices around the world.