Corporate Governance Regulations and Approaches

Abstract

The corporate governance regulations and rules make companies more transparent, credible and improve their standard of governance and make them attractive for investors to get lower cost funds to fund the companies.

Bebchuk and Roe (2000) argue that the direction of legal reforms is typically pre-determined by the initial institutional structures in a country. In particular, ownership and control concentration is an important factor that affects the role and function of corporate legislation and hence the direction of its reforms. This is because the degree of ownership and control concentration plays a key role in the relationships between the different corporate stakeholders. In countries where widely-held companies prevail, the main function of corporate governance regulation is to protect shareholders from being expropriated by the management. In countries where a vast majority of companies have a concentrated ownership and control structure, the function of corporate governance regulation is to minimize the extent of agency problems between majority and minority shareholders and that between shareholders and creditors.