Shareholder Value and the Financial Crisis - 2682 Words

To what extent can the economic and financial crisis starting in 2007-8 be attributed to the flaws of the shareholder value principle of corporate governance? Intro Corporate governance is a critical concept in the commercial world of today with the idea originating initially from the U.S. The importance of corporate governance is made more considerable due to the increasing influence and consequences companies have on the daily lives of individuals and making up a large proportion of economic activity. Corporate governance can be shortly described as the whole framework within which companies operate. It is most likely the case that the shareholder value principle was not the only part of corporate governance which contributed to the†¦show more content†¦So instead of managers of top corporations constantly looking to internally and externally expand they would now put more importance into decreasing the size of the company and the total number of those they employ, this in turn would result in a higher dividend to be shared among shareholders as there is one or more less wage to pay. This process started occurring in 1980 when most c orporations in the U.S had adopted this new model, a consequence of this was the vast amount of jobs which had previously offered stable employment and decent pay to the economy which were now gone due to the reorganisation of the labour structures of these corporations which led to them cutting out many positions. The result for the economy may have been poor however for the corporations, after downsizing they could refocus the extra revenue towards improving the company s stock market performance. It should be noted that the model of retain and reinvest was beneficial to multiple stakeholders, it allowed workers to gradually be paid higher wages as the company grew and solidified job security, suppliers and distributors would also gain resulting in a higher number of orders and overall lower costs charged to the company which means that consumers in the relevant market could also benefit fromShow MoreRelatedShareholder Value and Current Financial Crisis: An Analysis of the Relatio nship4354 Words   |  18 PagesShareholder Value and Current Financial Crisis: An analysis of the Relationship INTRODUCTION Corporate governance in a particular firm is inevitable for its administration, policy making and overall health. In other words, ‘Corporate governance affects the development and functioning of capital markets and exerts a strong influence on resource allocation[1].’ Not only does it conduct the present running of a firm but it also has a futuristic outlook and a good corporate governance system encouragesRead MoreRanking the Key Principles of Corporate Governance1579 Words   |  7 Pagescauses of the 2008 global financial crisis (GFC). Stakeholder reactions to and perceptions about the standards of corporate governance in the lead up to the global financial crisis are also taken into account. In light of the global financial crisis, this essay proposes that the corporate governance principles be ranked based on four critical threads: risk management; board and executive remuneration processes; board performance; and finally the exercise of shareholder rights. The ASX CorporateRead MoreThe Industry Performance And The Firm s Performance877 Words   |  4 Pagesis called financial distress. The firms need to figure out new ways to generate income and cut costs. At the same time, the money borrowed to finance the assets could be more expensive. As the financial institutions and banks may increase the rate charged for borrowed assets when a company is in financial distress. According to the definition of the financial distress, due to the increasing of the risk, the debts value of debt holders would devalue. From the perspective that the firm value is the sumRead MoreFair Value Accounting Within Financial Crisis Essay1284 Words   |  6 Pagesnumerous number of disputes in the field of financial reporting among different professionals, regulators and theoretitions .most of these disputes are related to the valuation of financial reporting components.the current curve in the progress of valuation is the push for and against the fair value ap proach.the purpose of this research is to examine the arguments on the use of fair value accounting and to identify the issues related to implementation of fair value accounting standards. Further, the resultsRead MoreHow Failures in Financial Engineering Influenced the Recent Financial Crisis1303 Words   |  6 PagesIn this paper, an analysis of how the failures in financial engineering and Corporate Governance have been closely related with the recent Global Financial Crisis is carried out. The Real Estate Bubble in 2006 leaded to the Subprime Mortgage Crisis in 2007 which expanded from the United States to the whole world generating the biggest financial crisis since the Great Depression of the 1930s. There are multiple factors that originate a crisis like this, and will be explained and analysed laterRead MoreInstitutional Markets : Institutional Investors1505 Words   |  7 Pageshighly specialized investors on behalf of others. For example, an employee will have a pension from his employer as the employer gives that person s pension contributions to a fund and the fund will be used to buy shares in a company, or some other financial product. Funds are greatly useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund s investment. Types of Institutional InvestorsRead MoreRisk Management in Corporate Finance617 Words   |  3 PagesRisk Management in Corporate Finance Risk management in corporate finance involves creating an economic value in an organization through financial instruments in managing exposure to threats. This is particularly market risk and credit risk. Financial risk management has become the center stage of all global organizations. It is not just a concern but also a strategic area of focus. Such focus demands a greatly specialized talent (Wunnicke, Wilson Wunnicke, 2007). Executives in corporate financeRead MoreThe Clash Between Management And Ownership1311 Words   |  6 Pagesorganization has hundreds of thousands of shareholders in the firm who owes the business. And each of them will have different preference to wealth, risk tolerance, investment decisions, strategy and so on. They cannot possibly manage or have control over the business directly, therefore a separation of ownership and control is needed. A managing team will run the corporation and this will easily lead to conflicts between the interest of the management and the shareholders. In this essay we will look at howRead MoreExecutive Compensation And Shareholder Wealth Maximisation964 Words   |  4 PagesThis literature reviewed ‘executive compensation’ and shareholder wealth maximisation. Most studies produced mixed outcomes in relations to the matter. In producing a critical analysis on prior literature, the motive has been to converge a succinct view from different authors’ standpoint in relation to an effectiveness of executive compensation as a function of value deliberation. In addition, considered other alternatives, such as board structure in resolving this agent-problem henceforth. In summaryRead MoreCorporate Governance For A Future Economic Crisis Essay1288 Words   |  6 Pages-Can corporate governance prevent a future economic crisis. Ten years ago, corporate governance was still in the concept stage. There wasn’t a lot of information about corporate governance. After some big corporate failure that hit the economy, it has become obvious that corporate governance matters. After the collapse of Enron,Wordcom,..a new regulation was born (Sarbanes Oxley).The law was implement to increase transparency and to promote integrity and accuracy inside the companies. Unfortunately