Importance Of Good Corporate Governance

1. Introduction

Corporate governance has always been one of the way to measure the performance of the corporate houses. But its importance in today’s era has increased a lot. It is due the various corporate scams that have been occurred in last few years. Corporate governance refers to the way through which society can ensure that large corporations are well-run institutions to which investors and lenders can confidently commit their funds. It creates safeguards against corruption and mismanagement of the board and provides sincere commitment in creating and sustaining an ethical business culture in public and private sectors. Corporate governance policies, norms,

Good Corporate Governance helps the companies in the following ways;

• Better corporate governance helps the companies to attract more investors as investors know how and where their money is being utilized.

• Effective corporate governance systems promote the development of strong financial systems – irrespective of whether they are largely bank-based or market-based.

• Effective corporate governance mechanisms ensure better resource allocation and management, increasing the return to capital. The return on assets (ROA) is significantly high in companies with the highest level of equity rights protection than in companies with the lowest protection. Good corporate governance can remove mistrust between different stakeholders, reduce legal costs and improve social and labour relationships.

• Good corporate governance allows the companies to have better internal control.

• It also helps to maximize the shareholders’ wealth and provide them the consistent and growing returns to them.

• An effective corporate governance can minimize the agency costs and hold-up the problems associated with the separation of the ownership and