Essay on The Impact Of Corporate Governance Related Factors

Essay on The Impact Of Corporate Governance Related Factors

Length: 1001 words (2.9 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

This thesis examines the impact of corporate governance-related factors, particularly CEO incentive compensation, discretionary accruals and firm technical efficiency improvement, on stock returns in Australia. The motivation to investigate these impacts was the increasing importance of the equity-based compensation component in CEO remuneration packages, the numerous financial reporting scandals at high profile companies such as Enron, WorldCom and HIH Insurance, and an urgent call from the government on improvement in productivity.
Among various corporate governance mechanisms, CEO compensation is viewed as an efficient incentive to align the interests of managers with those of shareholders. According to agency theory, effective compensation policies, particularly incentive-based pay, induce managers to make more effort, and to undertake risky and shareholder-wealth-increasing investments to increase their firms ' value. However, in practice, some argue that too close a link between CEO compensation and firm performance may cause CEOs to become either too conservative or too aggressive, which may lead to suboptimal investments and lower firm value.
The second factor examined in this thesis is the quality of financial reporting. According to Healy and Wahlen (1999), two important purposes of financial reporting are that it helps the best-performing firms in the economy to distinguish themselves from poor performers and it facilitates efficient resource allocation and stewardship decisions by stakeholders. Furthermore, better financial reporting would reduce information asymmetry between firms’ managers and outside investors and promote investor confidence, resulting in lower cost of capital and then higher firm value. Therefore,...

... middle of paper ... factors such as size, book-to-market, market liquidity, industry concentration, and seasonality effect, which has an important implication for market efficiency. The evidence is also of interest to investors/portfolio managers in terms of asset selection and asset allocation.
Overall, the thesis makes a number of valuable contributions to the literature by providing empirical evidence on the impacts of three corporate governance-related factors on cross-section of stock returns. The findings from the thesis have important implications for firms in designing an optimal contract with their CEOs, for financial reporting users in terms of the information value of reported earnings and market regulators in terms of corporate governance and the accounting standards related to corporate reporting, and for investors in regard to their asset selection and asset allocation.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on The Impact Of Corporate Governance Related Factors On Stock Returns

- This thesis has examined the impact of corporate governance-related factors on stock returns. Corporate governance refers to the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome the conflict of interests inherent in the corporate form. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how firm performance is optimised. There is no doubt that what ultimately matters for firms is whether corporate governance affects corporate performance....   [tags: Corporate governance, Management]

Better Essays
1065 words (3 pages)

The Role Of Corporate Governance For Improving Companies ' Performance Essay

- The role of corporate governance in improving companies’ performance Content Introduction Article 1 Article 2 Article 3 Article 4 Reference List Introduction With economic development, the enterprise in the whole society 's economic system has become increasingly important role. Which is the result of an interaction. In terms of the development of enterprises, corporate governance as a system of company funds to ensure investors obtain the return on investment arrangements....   [tags: Corporate governance, Board of directors]

Better Essays
1243 words (3.6 pages)

Japan: Corporate Governance Research Methodology Essay example

- In our study of corporate governance and its impact on the overall economic and business environment, we have considered the example of Japanese Corporate governance and have compared it with other systems. We will study the comparative performances of the companies working in the Japanese system of corporate governance and the organizations working in other systems of corporate governance, primarily that of the United States. We have discussed the concept of corporate governance as well as management practices in detail and have tried to identify the difficulties and the barriers the company’s usually face while following a specific system of corporate governance....   [tags: japan, corporate governance, business]

Better Essays
1327 words (3.8 pages)

Why Ceos Remunerations Are On The Size Of The Firm And Their Performance And If Corporate Governance Mechanisms

- A growing list of empirical literature has attempted to investigate whether CEOs remunerations are related to the size of the firm and their performance and if corporate governance mechanisms have any significant influence on CEO remuneration. Undoubtedly the most documented association in the Executive remuneration literature is the rapport between CEO pay and firm size. CEOs of big companies are paid more. This is normally justified by the complexity of jobs performed by executive officers of large firm (Murphy, 1999)....   [tags: Corporate governance, Board of directors]

Better Essays
1812 words (5.2 pages)

Essay about The Rules and Principles of Corporate Governance

- ... During the founder stage, normally a single person, founder, runs the venture. A set of rules are certainly necessary for this stage, but the main challenge in keeping a family business intact rises thereafter that is to preserve the unity of the family members and their interests. This problem is certainly more critical after the second stage where the family members/shareholders barely know each other and each has a different vision for the business. Such a contrast of visions results in chaos that ultimately leads to destruction of the business....   [tags: business, enterprises]

Better Essays
924 words (2.6 pages)

Essay on Corporate Governance in the Financial Service Industry

- Introduction This essay is about the corporate governance, regulation, leverage and incentives in the financial service industry. This essay also includes the UK credit crunch crisis and the global economic crisis. The UK economy is in recession. Due to fall in demand for goods and services reduce production and unemployment increases. A fall in demand has an effect on industries. In some case firms close down and loss of job increase. The world has become a small village due to the internet, leading to world competition....   [tags: UK Economy]

Better Essays
2151 words (6.1 pages)

Enron Scandals Involving Unethical Corporate Governance Practices Essay

- Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars....   [tags: Business ethics, Enron, Ethics]

Better Essays
1096 words (3.1 pages)

The Impact Of International Culture Diversity On Employee Ethical Sensitivity And Decision Making

- Introduction: Ethical accounting failure has continued to occur in multinational companies despite the increased legislation, enhanced corporate governance programs, and greater attention on business ethics by the academic community. (Croxford, 2010.) According to his research, Croxford believed “that accounting professional was discriminated against based on their age, culture, gender, and education”. Multinational corporations have been facing ethical failures scandal for many years. Example: One of the biggest financial scandals was the Enron Scandal....   [tags: Corporation, Management, Corporate governance]

Better Essays
1041 words (3 pages)

Essay on Toyota: An Example Of Good Corporate Governance

- 1.0 INTRODUCTION Corporations the world over have been publicly criticized for improving their firm’s bottom line at any moral or social cost. Ethics essentially “refers to the issues of right, wrong, fairness and justice.” Clearly, examples such as Enron, WorldCom, and even Conrad Black tested society’s views on sound ethical business and the link to what society sees as “good” governance practices. Although the controversies involve issues matched in variety only by the types of companies, they all virtually involve some form of abuse of stakeholders trust....   [tags: Business Analysis Toyota]

Better Essays
1802 words (5.1 pages)

Impact Of Corporate Fraud On Business Profits Essay

- Fraudulent Activity is not always something that is easily detected in larger firms. The Top level management ultimately is perpetrators of this type of activity. It’s hard to say exactly why they allow theses situations to happen but it is known that they hope to deceive in order for a financial gain whether it is personal and or for the firms gain. While these perpetrators do these tragic things they never focus on the after math. They interrupt the lives of employees, make investors or industry personnel question their liability....   [tags: U.S. Securities and Exchange Commission]

Better Essays
1067 words (3 pages)