Corporate Governance and Investor Protection

In: Business and Management

Submitted By paulgleach
Words 758
Pages 4
Investor Protection and Corporate Governance
Introduction:
This paper seeks to critically review the topic of corporate governance and its relation to the protection of investor rights and finances. The benefits of current corporate governance practices will be assessed as well as the disadvantages that exist in fully managing and mitigation the risks that investors face in the corporate financial environment. Additionally, the importance of the practice and implementation of corporate governance will be examined as a means of accurately demonstrating the overall merit and usefulness of corporate governance in today’s financial environment.
Investor Protection:
Defond & Hung, (2004) defined investor protection as the extent of the laws that protect investors’ rights and the strength of the legal institutions that facilitate the enforcement of those laws where they exist. This definition was further expanded by La Porta et al (2000) who postulated strong investor protection laws and similarly robust enforcement institutions were the main contributors to markets that promoted investment simply because the rights of the investors were seen to be adequately protected and the risk of exapropriation by managment was greatly reduced. It was therefore seen as critical that the protection of investor’s rights was necessary as minority shareholders were often exploited by creditors and majority shareholders extensively. La Porta, et al., (2000) further posited that, in the absence of strong corporate governance mechanisms, shareholders faced the real risk of returns on their investments being expropriated by managers and other controlling shareholders.
Corporate Governance Overview:
Tirole, (2001) proffered that the standard definition of corporate governance among traditional scholars is the defence of shareholders’ interests and further postulated that a…...

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