Thesis On Corporate Governance And Risk Management

Thesis On Corporate Governance And Risk Management-23
The Committee’s view is that the need for having an audit committee grows from the recognition of the audit committee’s position in the larger mosaic of the governance process, as it relates to the oversight of financial reporting.

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It is the muscle that moves a viable and accessible financial reporting structure.In the financial system, corporate governance is one of the key factors that determine the health of the system and its ability to survive economic shocks (Bollard, 2003).The health of the financial system much depends on the underlying soundness of its individual components and the connections between them – such as the banks, the non-bank financial institutions and the payment systems (Pedro, 1998).The study by Gompers, (2003) also drew a strong correlation between corporate governance and financial valuations.The study found the valuation of companies in the democracy portfolio as measured by Tobin’s Q – the ratio of market value to book value of assets – to be 56 percent higher than those in the dictatorship portfolio.Second, good corporate governance may reduce the expected return on equity to the extent that it reduces shareholders’ monitoring and auditing costs.Ultimately, this should also lead to a higher firm valuation.DOI: 10.18775/ijmsba.1849-5664-5419.20 URL: org/10.18775/ijmsba.1849-5664-5419.20 ¹Bharti Vidyappeth Institute of Management Studies and Research, Navi, Mumbai, India ²School of Business and Commerce, Manipal University, Jaipur, India Abstract: Companies need funds to finance their activities and as a result, there has been a need for accountability to protect the interests of those providing the funding.Companies are also managed by directors who act as agents of the shareholders.Under pressure to maximize wealth they are prone to excessive risk, reckless conduct or in extreme cases, blatant manipulation of accounting figures.The call for increased accountability grows louder every time there is a crisis in public confidence.


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