Internal Control In Corporate Governance

953 Words4 Pages
With the progressing of modern society, more and more companies use advanced way to manage their business. Professional manager came out under this situation. On the one hand, these managers can help to governance firms in a professional way and make working more efficient; one the other hand, because of the interest conflict among managers and other controllers in the firms, balance need to enact here to continue the equilibrium condition. This essay is the literature review from former authors and illustrated some important concepts in corporate governance. Then facing agency problem as the most popular and tough issue to make further discussion.

Key words: corporate governance; internal control; agency problem;
1. Introduction
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Section 3 considers the relationship between corporate governance and firm’s internal control and makes comparison. Section 4 deals with a frequent problem drafts from corporate governance-agency problem. Section 5 provides a summary and identifies some remaining puzzles for future…show more content…
To make further step, Fama and Jensen (1983) states that the goal of corporate governance research is the issue of separation between ownership and management rights, where the mainly solution for this is how to reduce agency costs. Shleifer and Vishny (1997) recognized that corporate governance deals with the way whether the company's capital suppliers can ensure their return on their investment. The central issue of corporate governance is to ensure the interests of capital suppliers (both shareholders and creditors). Cochran and Wartick (1998) states the corporate governance addresses many specific issues about what senior managers, shareholders, boards, and companies do with the interaction of stakeholders.
3. The difference between corporate governance and internal control
Corporate governance is a control system that restricts enterprise management behavior through competitive external market (such as capital market, manager market, product market, merger market, etc.) and management system. According to the definition of COSO (Committee of Sponsoring Organizations of the Treadway Commission) 1992, internal control refers to the efficiency of the operation
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