Corporate governance influences the efficiency of firm production at the corporate level. Standard agency theory defines the corporate governance problem in terms how equity and debt holders influence managers to act in the best interests of the providers of capital. To the extent that shareholders and creditors induce managers to maximize firm value, this will improve the efficiency with which firms allocate resources. Diffuse shareholders exert corporate governance through voting rights and the election of boards of directors and diffuse debt holders limit managerial discretion through bond covenants. These mechanisms, however, do not work well around the world. Small investors have a difficult time exercising corporate governance because of informational asymmetries and poor legal, bankruptcy, and regulatory systems. Instead, large investors – large equity holders are the primary sources of corporate governance. Finally the government sets the tone for corporate governance. Examine how equity and debt holders – diffuse and concentrated holders of debt and equity such as the government, minority and major shareholders, diffuse and concentrated debt holders and even competition attempt to exert corporate governance and the impediments that exist?

Answer rating: 100% (QA)

There are three main types of corporate governance mechanisms voting rights board of directors and b... View the full answer