What is corporate governance
Managers may divert some of the profits toward product diversification, which may be against the shareholder’s will who may want to have the profits as their dividends. Why is governance necessary to control managers’ decisions? The managers may invest shareholders finances in projects that do not maximize shareholder’s wealth but serve their own selfish interest. The principal may fail to ascertain on whether the manager has acted accordingly, by doing what is expected of him and ensuring he maximizes shareholder’s wealth. What is meant by the statement that ownership is separated from managerial control in the corporation? Acquisition of ownership of a corporate is done by purchasing stock. Those who buy stock are referred to shareholders, and do not directly participate in running the affairs of the corporate.
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