Corporate Governance

1
Corporate Governance

• Market and Regulations

2
Framework of Corporate Governance
3
Framework of Corporate Governance
4
Corporate Governance

• External CG
• A. Legal mechanisms
• B. Market mechanisms
• Internal CG

5
Corporate Governance

• A. Legal Mechanisms
• Investor Rights
• Board Responsibilities
• Disclosure Rules
• Enforcement of laws

6
Corporate Governance

• B. Market Mechanisms
• Capital Market
• Product Market
• Labor Market

7
Corporate Governance

• B. Market Mechanisms
• Capital Market
• Pressures of Capital Markets will Improve
  Governance of Corporations
• Improvements in Corporate Governance will Promote
  Development of Capital Markets

8
Market Efficiency

• Market-based governance system
• Are markets efficient?
• Anomalies

9
Transparency

• Timely and accurate disclosure is made on all
  material matters regarding the corporation,
  including the financial situation, performance,
  ownership, and governance of the company (OECD
  Principles)
• Information asymmetry

10
Transparency

• Reducing information asymmetry
• Role of financial disclosure and external audit
  in corporate governance

11
The Lemons Problem
12
The Lemons Problem

• Can lead to the breakdown in the functioning of
  the capital market
• Investors cant differentiate between good ideas
  and bad ideas.
• Value all ideas as average.
• Corporate disclosures and external audits play an
  important role in mitigating this problem