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THE THEORETICAL BASIS AND TREND OF CORPORATE GOVERNANCE

19.08.2020 11:10

[Секция 1. Экономика, организация и управление предприятиями, отраслями, комплексами]

Автор: Fuli Chen, PhD Student, Sumy National Agrarian University


As a key symbol of modern enterprises, corporate governance plays an important role in the development of modern enterprises. In the past four decades, with the gradual deepening of corporate governance research, corporate governance has become an important research field. The analysis of these theories can help us deeply understand the connotation and development trend of corporate governance. 

1) Agent theory. In modern enterprises, business owners hire professional managers to handle business-related matters, which creates the separation of ownership and management rights. The owner's goal is to preserve and increase the value of the company's assets, while the manager's goal is higher returns. On this basis, there still exists the problem that large shareholders infringe the interests of small and medium shareholders in order to maximize their interests. The principal-agent theory believes that designing appropriate reward and restraint mechanisms for operators and reducing agency costs are the main issues to be solved by corporate governance.

2) Stakeholder theory. The stakeholder theory believes that a modern enterprise is a system formed by many elements, and the interests of a company belong to all stakeholders, not just shareholders. The company’s stakeholders usually provide the necessary elements for the company’s operations, so the company must provide these stakeholders with value-preserving and value-added services. The stakeholder theory expands the scope of corporate governance concerns and is also a very important theoretical basis in current corporate governance practices [1].

3) Property rights theory. Property rights theory believes that the essence of an enterprise is a contract structure, and the terms of the contract affect the arrangement of enterprise control rights, especially residual control rights and residual claim rights. Through clearly defined corporate property rights, the distribution of power, responsibilities, and benefits among various stakeholders can be coordinated to form an effective supervisory and incentive role.

4) Incomplete contract theory. The incompleteness of the contract refers to the inevitable lack or omission in the contract. Since the situation that may occur in the future is not completely clear when the contract is signed, the provisions on the rights and responsibilities of the parties to the contract are not detailed enough. The reason why the contract is incomplete is that it is affected by a variety of factors, such as the limited rationality of people, the limitation of cognitive ability, and the possible deviations in the process of information transmission, so that the possible future states cannot be fully judged.

Corporate governance essentially stipulates the rights, responsibilities and interests of the various entities related to the company's interests. In the past, the theory of corporate governance has been devoted to discussing how to coordinate the balance of interests of stakeholders and the protection of the interests of individual stakeholders through system design. At the same time, the concept of corporate governance is constantly evolving, and future corporate governance research will be more in-depth and detailed. The development direction of corporate governance theory research includes: corporate governance issues of different types of enterprises, theories of corporate governance evaluation, theoretical research on the intersection of corporate governance and other disciplines, and governance issues of the Internet and other organizations [2].

Literature:

1. A. Arora and C. Sharma, “Corporate governance and firm performance in developing countries: evidence from India,” Corp. Gov., vol. 16, no. 2, pp. 420–436, 2016, doi: 10.1108/CG-01-2016-0018.

2. A. C. Fernando, K. P. Muraleedharan, and E. K. Satheesh, Corporate Governance Principles, Policies and Practices, vol. 53, no. 9. 2017.


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Scientific supervisor: Пасько Олег Віталійович, PhD of Economic, Associate Professor


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