Module 24.1 LOS 24.a and 24.h: Core purpose of Corporate Governance and Its Impact on Valuation

The corporate governance in a company should strive to eliminate or reduce conflicts of interests and use company assets with the best interests of investors and stakeholders in mind.

An effective corporate governance system will:

  • Define the rights of shareholders and other important stakeholders.
  • Define and communicate to stakeholders the oversight responsibilities of managers and directors.
  • Provide for fair and equitable treatment in all dealings between managers, directors, and shareholders.
  • Have complete transparency and accuracy in disclosures regarding operations, performance, risk, and financial position.

Strong and effective corporate governance has been shown to lead to higher profits and returns for shareholders. Bad corporate governance increases risks to an investor. Some examples of these risks include financial disclosure risk, asset risks, liability risk and strategic policy risks.

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