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Industrial Finance And Corporate Governance: Term Paper

Therefore, it is recommended to optimize return to shareholders, which should become the most important objective for a company. In other words, "corporate governance practices should focus board attention on this objective. In particular, the company should thrive to excel in comparison with the specific equity sector peer group benchmark" (ECGI, 2005). Another objective refers to the long-term prosperity of the business. This requires the development and implementation of a corporate strategy that focuses on increasing the equity value on a long-term. Another recommendation refers to facilitating the exercise of ownership rights by all shareholders. In relation to this, all shareholders must be treated equitably. One of the most important recommendations refers to increasing the shareholders' possibility to be a part in the decision making process for matters of extreme importance to the company's activity.

The importance of corporate governance in general and of investor protection in particular, resides in its influence on real economy. As certain specialists in the field have agreed upon, financial development can be responsible for accelerated economic growth (La Porta et al., 1999). This influence on economic growth can be discussed under three aspects. First of all, investor protection enhances savings. As a consequence, these savings can be directed towards real investments, leading to capital accumulation. And last, but not least, investor protection improves the efficiency of resource allocation. These three directions are very important when linking financial development to economic growth.

The most productive corporate governance systems are considered to be those focusing on the institutions financing firms in the detriment of those focusing on the legal protection of investors. These corporate governance systems that are centered around banks present similar traits to those centered on markets. Such bank-centered corporate governance systems are applied in Germany and Japan. It seems that such systems might be the future of corporate governance, given the great status of the German and...

One of the most important advantages is the fact that far-sighted banks allow companies to focus on long-term investment decisions. In addition to this, banks are able to provide capital to companies that are experiencing financial difficulties, therefore reducing the level of financial stress and preventing the company from taking a series of negative measures that could negatively affect the company, its employees, and its customers. Also, banks have another advantage, that of replacing invasive takeovers with financial intervention.
The conclusion is that there is no singular corporate governance system that is suitable for any economy, for any company, and for any situation. The corporate governance model that is selected by companies should be in accordance with the country's state of economy, the government's level of interference in the company's activity, and with other aspects of extreme importance for the company's activity. However, the healthiest corporate governance model is probably the bank-centered one, because of the financial advantages it provides.

Reference List

Sapovadia, V.K. (2003). Good Corporate Governance: An Instrument for Wealth Maximization. MBA Department of Saurashtra University Conference, India. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=955289. Accessed January 18, 2008.

Corporate governance (2007). Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Corporate_governance. Accessed January 19, 2008.

ICGN Statement on Global Corporate Governance Principles (2005). International Corporate Governance Network. European Corporate Governance Institute. www.ecgi.org/codes/documents/revised_principles_jul2005.pdf. Accessed January 19.

La Porta, R. et al. (1999). Investor Protection and Corporate Governance. Social Science Research Network. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=183908#PaperDownload. Accessed January 19, 2008.

Sources used in this document:
Reference List

Sapovadia, V.K. (2003). Good Corporate Governance: An Instrument for Wealth Maximization. MBA Department of Saurashtra University Conference, India. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=955289. Accessed January 18, 2008.

Corporate governance (2007). Wikipedia, the free encyclopedia. http://en.wikipedia.org/wiki/Corporate_governance. Accessed January 19, 2008.

ICGN Statement on Global Corporate Governance Principles (2005). International Corporate Governance Network. European Corporate Governance Institute. www.ecgi.org/codes/documents/revised_principles_jul2005.pdf. Accessed January 19.

La Porta, R. et al. (1999). Investor Protection and Corporate Governance. Social Science Research Network. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=183908#PaperDownload. Accessed January 19, 2008.
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