Asked by Travis Entwisle on May 28, 2024
Verified
Medico Corporation is a public company whose shares are traded in public securities markets. Medico's officers want to set up and maintain a system of "good corporate governance." What is "corporate governance"? What is its practical significance? What, at a minimum, should a "good" system of corporate governance include?
Corporate Governance
A set of policies specifying the rights and responsibilities of the various participants in a corporation and spelling out the rules and procedures for making corporate decisions.
Public Securities Markets
Platforms where securities such as stocks and bonds are issued and traded openly, allowing investors to buy and sell them.
Practical Significance
The real-world importance or utility of an outcome or effect, beyond its statistical significance.
- Identify corporate governance practices and their significance.
Verified Answer
Corporate governance is the essential purpose of corporation law, which sets out the structure of a corporation.
A "good" system of corporate governance involves, at a minimum, (1)the audited reporting of financial progress at the firm, so that its managers can be evaluated and (2)legal protection for shareholders, so that parties who violate the law to take advantage of shareholders can be punished for their misconduct and their victims can recover damages. Practically, good corporate governance in the form of accountability to investors provides the opportunity to enhance corporate wealth, because firms with expanded shareholder rights-a hallmark of good corporate governance-have been shown to have increased profits, sales growth, company value, and other economic advantages.
Learning Objectives
- Identify corporate governance practices and their significance.
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