Corporate Governance Literature Review

Executive Summary

In a nutshell, Corporate Governance is the foundation by which a company regulates and directs. It is a set of guidelines, procedures, and disciplines that executives utilize to standardize a corporation. There are many influences that impact a firm’s corporate governance like its’ executive personnel and Board of Directors (BODs). Being elected by a firm’s shareholders, the board’s tasks plays an integral role in a firm; they determine the purpose and values by which a company will build a foundation on. In a general sense, corporate governance can be described with two general categories, good and bad corporate governance. The standards of a good corporate governance system are determined by its ability to set rules and guidelines that can co-exist with a firm’s integrity as well as good public perception. On the other hand, bad corporate governance raises doubt on a firm’s integrity due to illegal actions which was evident in corporate fraud cases around the years of 2001-2002.

While the roots of corporate governance can be traced to the years of 1970s in the United States, it came to fruition around the late 1990s into the early 2000s. More specifically, in the middle of the 1970s, illegal actions like prohibited expenditures “… by U.S. corporations to foreign officials drew the [Securities and Exchange Commission] further into the corporate governance realm.” (Cheffins, 3). Events like corporate bribery raised necessary actions for S.E.C. to undertake many incidents of unethical corporate governance practices and amend solid policies that would refrain corporations from committing the act once again as well as constructing an audit committee to supervise corporations’ audits. Upon restraining the illegal actions of corporations, S.E.C., in 1976, also took to the New York Stock Exchange (N.Y.S.E.) to ensure that their provisions were achieved by each of the corporations that were listed with N.Y.S.E. and that they had “… an audit committee composed of independent directors…” (Cheffins, 3).

With corporations emerging and the economy booming, the next wave of corporate governance cases arrived in the United States throughout the 1980s and 1990s (Holmstrom and Kaplan, 1). In the 1980s, the trend of corporate buyouts and mergers had exponentially grown which called for a cause of restructuring the corporate governance for corporations that went through buyouts. These buyouts required the utilization of financial leverage, which is a process by which a corporation borrows money to make investments like buyouts. In the years between 1984 and 1990, equity of at least $500 Billion were used to fund corporate buyouts and more (Holmstrom and Kaplan, 1). Entering the years of 1990s, the board of directors of corporations began to extend corporate governance plans. An extension of corporate governance was to improve policies as standards to assess the board of director’s actions (Cheffins, 13). During the time, public pension funds started to advocate board of directors in a movement to eliminate incompetent executive personnel; this drive brought acceptance from many notorious corporations like American Express, IBM and others (Cheffins, 13). Corporate governance had also reached the country of United Kingdom (U.K.) in the 1990s. In the year of 1991, U.K. looked to take the reign on corporate governance and propose a Committee on the Financial Aspects of Corporate Governance; However, this proposal did not live up to its purpose, many British corporations had fell victim to the lack of accountability from the executive personnel (Cheffins, 19). The corporate governance that was involved in the years of 1990s was a precursor to the corporate outbreaks that were about take place in the beginning of the years of 2000s.

In the years of 2001 to 2003, the corporate governance predicament was a catastrophic one. Many U.S. corporations were tasked with restructuring financial reports and conceding any unethical fraudulent claims that they were accused of. Most prominently, companies like Enron and WorldCom, who were listed in the rankings of Top 25 of the Fortune 5000 in the year of 2000, were found with increasingly amount of fraudulent statements. The consequences of the actions by the corporations was dire; Administrative personnel of the corporations in question were sentenced to prison for a considerable amount of time. Due to corporations not coinciding with the prior governance policies that were implemented, the United States Congress enacted the Sarbanes-Oxley Act of 2002, more commonly referenced as SOx, which enforced restrictions on corporate fraud and helped provide corporate investors with security. Primarily considered as a reinforcement tactic in the wake of accounting frauds, SOx also found its purpose as a kickoff towards how corporations regulate their processes. Though the corporate governance requirements that were listed in SOx are not newly identified ideas imposed by the United States Congress, they are more so concepts that had been utilized before by successful corporate governance professionals (Romano, 3). While the United States was facing a financial governance crisis, European countries soon look to follow the same path with corporate scandals with well-known corporations like Parmalat and Royal Dutch Ahold (Winter, 3). However, the European legislative committee did not enforce a mandatory act similar to United States’ Sarbanes-Oxley; they predicated their response United Kingdoms’ plan of corporate governance. Once considered as the epicenter of Italian commerce, Parmalat was accused of embezzling around 4 billion Euros. While there were cases against Parmalat’s executives, Europe was in a position of standstill for quite some time, imposing little to no strict legal actions in response to the fraudulent acts. On the other hand, in the case of Royal Dutch Ahold, the company was forced with the notice of resignation from its executive and financial executives due to the falsification of its profits and exaggerating the amounts the company had brought in. Many were quick to tag these financial crises in Europe as “Europe’s Enron”.

In the aftermath of corporate fallouts (Enron, WorldCom, and others), corporate investors had a feeling of doubt and insecurity from their investment in corporations. In order to regain the trust of corporate investors, legislators were tasked with amending regulations following the scandals. Auditing firms were deprived of their consulting processes as well as some corporations were at a risk of losing their business. With SOx being enacted, it also urged stock indices like the New York Stock Exchange and Nasdaq to promote further awareness of corporate governance for corporations that are listed in those markets (Agrawal and Chadha, 2). Enron’s downfall set out warnings to future corporations and legislators, which provided a cause of widespread response to the circumstances. In order to respond to Enron’s aftermath and to avoid any future fraudulent misdoings, the Securities and Exchange Commission (SEC) suggested a motive to utilize “independent monitoring of audit firms, called for audit firms to sell their consulting business…, and recommended disclosure of analyst involvement and compensation from their firms’ investment banking activities.” (Palepu and Healy, 29). In order to promote a reformation of the corporate auditing process, many researchers suggested that corporate investors were in need of financial translucence in which it would grant the investors with some information about the company to keep them updated with the corporation’s progress. Enron’s predicament provided a reconsideration of the governance laws which were handled poorly due to the sudden unexpected fall of a corporation that was held as a prestigious company. According to Palepu and Healy, they contemplated that, despite the sudden responses to the governance crisis, “… there is a need for a deeper reconsideration of the goals, incentives, and interactions of these capital market intermediaries.” (34).

With the dawn of the financial collapses that were brought on by prestigious corporations like Enron, WorldCom, Parmalat, many researchers sought out to find resolutions to such poor corporate governance. Researchers, like Lawrence Brown and Marcus Caylor, analyzed approximately 2,000 firms establishing the basis of their research on “… 51 corporate governance provisions provided by Institutional Investor Services (ISS)…” (“Corporate Governance and Firm Performance”, 28). Creating a corporate governance measurement tool called the “Gov-Score”, Brown and Caylor measured the performance of firms and the correlation that it has with a firm’s corporate governance. Using a prior corporate governance index called the “G-Index” created by Paul Gompers, Joy Ishii and Andrew Metrick (2003) as a comparison tool, Brown and Caylor’s research proposes that firms with “executive and director compensation” (“Corporate Governance and Firm Performance”, 29) have a direct correlation with good performance. On the other hand, corporations with charter/bylaws contributed less to the good performance of a firm. While looking at the reorganization of the corporate governance mandates by the Sarbanes-Oxley Act and the three major stock exchanges, Brown and Caylor deduce three factors that play a major role in firm’s good performance: “… independent board of directors, nominating committees, and compensation committees…” (“Corporate Governance and Firm Performance”, 31). The research provided by Brown and Caylor provided a stance at how the reformation after such a catastrophic event, like the corporate governance fallouts of notorious companies, is being dealt with. Implementing such indices into the corporate world could not only promote practice of good corporate governance but also increase the output of good performance for corporations.

The next controversial setback came during the 2007-2008 Financial Crisis, which affected majority of the world but mainly the United States. While debatable, the main cause of the 2007-2008 financial crisis centers around the deregulation of credit default swaps. Performance of corporations also played an integral part in the financial crisis. As mentioned before, Brown and Caylor offered their research to suggest that corporate governance of a firm and a firm’s performance both are correlated to one another. To better understand the inner workings of the financial crisis and to comprehend the factors, researchers suggest that corporate governance had a major influence on a firm’s performance with a firm’s risk-taking and guidelines as well as “firms with higher institutional ownership and more independent boards had worse stock returns than other firms during the crisis.” (Erkens et al., 32).

With crises bringing a wide-range of emphasis on the factors of corporate governance, many have just begun to scratch the surface on the topic. After much consideration, many suggest that the blueprint for the current system for how corporate governance is operated should be redesigned. In a 2015 issue for the Harvard Business Review, Guhan Subramanian suggests a plan called “Corporate Governance 2.0” that could be a direct solution to improving the attributes of corporate governance, rather than providing a means to an end of an uprising problem. Subramanian’s three principles that could contribute to improving the current system of corporate governance relies on the increased involvement of boards in a firm. In brief, Subramanian suggest that Boards should emphasize the management of long-term performance over short-term, implement protocols to acquire the perfect talent that fit with the firm’s board, and offer a proper voice to its shareholders (Subramanian, “Corporate Governance 2.0”). While the topic of corporate governance is mere spectacle in the world of finance, the true value of the subject plays a major role in the construct of a financial institution. From evaluating firm performance/value to defining a firm’s structural capability, corporate governance seemed to be backbone of corporations that seemed to define it’s every move. While it may seem as if corporate governance simply has an impact on corporations in the United States, it takes a toll on firms globally. If dealt with the wrong way, the consequences may be dire as was evident in the financial fallouts around the years of 2001 to 2002 as well as around 2008. The state of corporate governance seems to have gotten well on-course and not showing any signs of distress, however corporate leaders should keep focusing on improving the system and implementing provisions that could aid in the decrease of unethical activities with the misuse of corporate governance.

Corporate Governance

McKay, Douglas R, et al. “Corporate Governance and Business Ethics.” Plastic Surgery, Pulsus Group Inc, 2015, www.ncbi.nlm.nih.gov/pmc/articles/PMC4664146/.

McKay and his colleagues describe the importance of corporate governance and business ethics that coincide in a corporation. The authors emphasize Volkswagen’s lack of ethical standards and dishonesty with the Environmental Protection Agency (EPA) by violating the Clean Air Act in which Volkswagen’s vehicles were equipped with software intended to trick federal emissions tests. With that matter, the authors highlight the increasing number of scandals that occurred towards the end of the 20th century. While corporations aim for collecting shareholder value, the scandals had “rattled investor confidence” (McKay et al.). These actions caused the Public Company Accounting Reform and Investor Protection Act (Sarbanes-Oxley [SOx] Act) to be passed which “… laid out obligations for publically traded and privately held corporations, with an aim to improving accountability” (McKay et al.). Furthermore, SOx gives management and board of directors of a company the liability of ensuring corporate governance. The authors also go on to differentiate between ethics and corporate governance acts (the law). While acts like ‘SOx’ keep a corporation accountable, “ethicists are quick to point out that the [corporate governance acts] should be thought of as the bare minimum of an ethical framework” (McKay et al.). In other words, while some actions may be deemed illegal for a corporation, the law does not address the unethical path that leads to the misconduct. McKay and the other authors also noted that while scandals did happen in the United States which caused the birth of SOx, lack of regulation with corporations was not restrained to just the United States but is a global setback. According to McKay et al., “Canada followed suit [after SOx] with Bill C-198. It is identical in principle, albeit subtly varied in accountability and execution”. This depicts that corporate governance is a better means of withholding corporations from committing any wrongdoings and ensuring stakeholder value of a company does not diminish.

Holmström, Bengt R., and Steven N. Kaplan. “The State of U.S. Corporate Governance: What’s Right and What’s Wrong?” Social Science Research Network, ECGI – European Corporate Governance Institute, 8 Sept. 2003, ssrn.com/abstract=441100.

In Holmstrom and Kaplan’s working paper, they put an emphasis on the corporate governance system in the United States, which was largely condemned for the downfall of its renowned corporations like Enron, WorldCom and such. The authors, also, noted that the collapse and judgements brought upon a cause of action for legislative change like the Sarbanes-Oxley Act of 2002 (SOx). Holmstrom and Kaplan bring upon interesting questions such as “has the U.S. corporate governance system performed that poorly – is it really that bad?… [and] will the proposed changes lead to a more effective system?” (Holmstrom and Kaplan, 1). To answer the questions, the authors indicate that there is not sufficient data to label the U.S. corporate governance system as flawed one and the economy/stock market of the United States has executed seamlessly compared to other countries in comparison from years of 1980’s onwards. Despite the scandals breaking news, it did not have an impact on U.S.’s stock markets’ ability to outperform. Holstrom and Kaplan gather analysis of the evidence and suggest that even though U.S. corporate governance system did indeed fail in the 1990s, the system did its best to tackle the problems as quickly as they could. The authors conclude, based on their breakdown of the overall effects that could have an impact in the near future, that the system could become better with the caution that there is associated risk.

Subramanian, Guhan. “Corporate Governance 2.0.” Harvard Business Review, 10 Feb. 2015, hbr.org/2015/03/corporate-governance-2-0.

In his article about Corporate Governance, Subramanian brings up an interesting revelation that the current system of governance is not working to its best ability. Attaining “best practices has been hindered by a patchwork system of regulation, a mix of public and private policy makers, and the lack of an accepted metric for determining what constitutes successful corporate governance.” (Subramanian). Subramanian suggest that the current corporate governance system could be redesigned and upgraded to better model that he likes to call “Corporate Governance 2.0”. His plan withholds three key ideologies in his new “redesigned” plan – ideologies that he suggests could level the field of agreement with all sides in the debate. In his first principle, the “Boards should have the right to manage the company for the long term.” (Subramanian). One of the biggest downfalls in todays’ system is the importance of short-term performance. The author suggest the focus should be on long term, which can be achieved by doing the following: “End earnings guidance,… Bring back a variation on the staggered board,… [and] Install exclusive forum provisions[.]” (Subramanian). The second principle pinpoints that boards should implement procedures to certify that the right people were appointed to the boardroom. In order to address the issue of lack of board personnel, Subramanian proposes that “Corporate Governance 2.0” would require significant director evaluations and contemplate shareholder proxy access. In his third and final principle, boards should allocate a voice to its shareholders. Subramanian believes that his plan for a new corporate governance system would not only benefit the United States but also the global emerging economies as well. A system like “Corporate Governance 2.0… would transform corporate governance from a never-ending conflict between boards and shareholders to a source of competitive advantage in the market place.” (Subramanian).

Brown, Lawrence D., and Marcus L. Caylor. “Corporate Governance and Firm Performance.” Social Science Research Network, Georgia State University, 27 Sept. 2004, ssrn.com/abstract=586423.

In this Journal Article, Brown and Caylor construct a tool of measurement for corporate governance, which is called the “Gov-Score”, deriving datasets from the Institutional Shareholder Services. Briefly, Gov-Score is a combined measurement of 51 elements containing the eight (8) categories of corporate governance: “audit, board of directors, charter/bylaws, director education, executive and director compensation, ownership, progressive practices, and state of incorporation.” (Brown and Caylor). Using Gov-Score, the authors utilize three (3) factors like “operating performance, valuation, and cash payouts…” to investigate 2,327 firms. In their research, they discover that firms that are well-controlled are moderately more profitable and appreciated (Brown and Caylor). In order to observe the firms performances, they look at which of the eight categories of corporate governance describes the firm using Gov-Score. The authors display that good governance in executive and director compensation is linked to good governance. However, for charter/bylaws, it is the opposite because good governance is connected to bad governance. An “oft-used 24-factor [metric] derived by Gompers, Ishii and Metrick (2003)” called the G-Index was used by the authors to compare their Gov-Score. The 24 factors of the G-Index are mainly concerned with the chart/bylaws category, which was indicated by the authors that it was not connected to good performance compared to the other seven categories. The deduction of the investigation was that compared to the G-Index, the Gov-Score was better associated with a firm’s performance.

Romano, Roberta. “The Sarbanes-Oxley Act and the Making of Quack Corporate Governance.” Social Science Research Network, NYU, Law and Econ Research Paper 04-032; Yale Law & Econ Research Paper 297; Yale ICF Working Paper 04-37; ECGI – Finance Working Paper 52/2004, 27 Sept. 2004, ssrn.com/abstract=596101.

In this working paper, Roberta Romano offers an assessment about the essential corporate governance rules which are described in the Sarbanes-Oxley Act of 2002. (SOx). SOx delivers a measurement for assessing the corporate governance rules’ effectiveness, through pinpointing whether certain requirements are closely described as effective modifications or unsuccessful corporate governance. The author goes into the depth of SOx and shows that it’s corporate governance requirements were not thoroughly planned. The political community clarifies the reason why Congress would ratify an act which was not solidified to its best potential. In the midst of controversies and a stock market that was falling, SOx was created as an emergency act to combat the corporate scandals that were occurring at the time. The corporate governance requirements were not significant to many concerned. The author concludes that SOx’s corporate governance requirements should be taken away and be considered as voluntary. She, also, advised that nations like EU members, who had revised their corporation codes, “… would be well advised to avoid Congress’ policy blunder.” (Romano).

Palepu, Krishna, and Paul M. Healy. “The Fall of Enron.” Social Science Research Network, Journal of Economic Perspectives, Vol. 17, No. 2, Spring 2003, 17 Oct. 2003, ssrn.com/abstract=417840.

In their working paper, Palepu and Healy examine how corporate governance and enticement conflicts played a role in the ascension and declension of Enron. Regardless of the intricate rules of corporate governance and mediated channels from where proper information and rules flow through, the authors display that Enron was successful in enticing big amounts of money to supply a business model which was problematic, hiding their real performance by steering many components, as well as raising the value of their stock to unverifiable points. Though Enron offers a prime sample, it also offers a showing of how the United States’ market has possible weaknesses. The authors conclude that the complications of corporate governance and other factors that surfaced during Enron’s time can be reflected by other companies, which could negatively affect the U.S. market as a whole.

Larcker, David F., et al. “How Important Is Corporate Governance?” Social Science Research Network, University of Pennsylvania, 28 Sept. 2004, ssrn.com/abstract=595821.

In this journal article, Larcker and the other authors survey the correlation between signs of corporate governance sets and certain processes of executive decision-making performances. The authors use around 2,106 firms as an example, they condense 39 processes of corporate governance to 14 corporate governance concepts. The authors concluded that the 14 concepts of corporate governance were connected to impending operational performance, had slightly varied connection with Tobin’s Q and upcoming additional stock returns.

Gugler, Klaus Peter, et al. “Corporate Governance and the Returns on Investment.” Social Science Research Network, EFA 2002 Berlin Meetings Presented Paper; and ECGI – Finance Working Paper No. 06/2003, 23 Apr. 2003, ssrn.com/abstract=299520.

In this working paper, Gugler and his colleagues consider more than 19,000 companies that are located in 61 countries across the globe and they observe how corporate governance establishments have influenced their ROI (return on investments). The authors indicate that a significant factor in how corporate governance impacts corporations worldwide is the basis of the country’s legal system. Corporations that are located in English legal system countries earn a ROI that is as large as the countries capital costs. While the opposite is to be said of civil law system countries, which earn average ROI which below their capital costs. The authors go on to display their findings of how “… entrenchment of managers in companies worsened their investment performance.” (Gugler et al.).

Bebchuk, Lucian A., et al. “What Matters in Corporate Governance?” Social Science Research Network, Review of Financial Studies, Vol. 22, No. 2, Pp. 783-827, February 2009; Harvard Law School John M. Olin Center Discussion Paper No. 491 (2004), 21 Sept. 2004, ssrn.com/abstract=593423.

Bebchuk, Cohen and Ferrell inspect the twenty-four (24) corporate governance requirements to see which ones are linked with a corporations’ value and their stockholder returns in their working paper. According to their evaluation, they provided an entrenchment index centered towards six (6) requirements (four (4) are constitutional requirements which avoids the majority of shareholders from gaining too much power, and two (2) “takeover readiness” requirements which are placed by boards of a corporation to ensure readiness in the case of a inimical takeover. They discovered that rising levels in the entrenchment index were connected with economic decreases in a corporations valuation, which was measured with another measurement index called Tobin’s Q. The authors portray indicative proof that entrenching requirements are the roots of lower corporation valuation. Additionally, they found that in their entrenchment index the requirements push the relationship which the Investor Responsibility Research Center (IRRC) requirements withhold with abridged corporation worth and lower stock return.

Bushman, Robert M., and Abbie J. Smith. “Financial Accounting Information and Corporate Governance.” Social Science Research Network, JAE Rochester Conference April 2000, 28 Apr. 2002, ssrn.com/abstract=253302.

In their paper, Bushman and Smith evaluate and suggest an expansion of research focused on the position of financially accounting data which were reported publicly in the corporate governance procedures of firms. The authors look at and examine the research for the utilization of financial accounting methods and discover upcoming exploration directions. Bushman and Smith offer a suggestion that research for corporate governance should be expanded in order to understand the utilization of financial accounting data along with “… corporate control mechanisms, and suggest opportunities for expanding such research in the U.S. and abroad, including the consideration of interactions among mechanisms.” (Bushman and Smith). Lastly, the author suggest investigation to examine the direct outcomes of financial accounting data via its position in corporate governance.

Agrawal, Anup, and Sahiba Chadha. “Corporate Governance and Accounting Scandals.” Social Science Research Network, AFA 2004 San Diego Meetings, Sept. 2004, ssrn.com/abstract=595138 .

Based on factual evidence, Agrawal and Chadha tests the results of some corporate governance tools connections with a corporations chances of reiterating the firms’ income. In their paper, the authors use around a hundred and fifty-nine (159) corporations in the United States that have reiterated their incomes. Agrawal and Chadha put together collection of information assessing around three hundred and twenty (320) companies’ corporate governance features. They discovered that many of the major corporate governance features were irrelevant of a corporation reiterating it’s income. They also discovered that corporations where the BOD’s/audit groups with a financial professional director turned out to have a low chance of reiterating income; whereas corporations with an executive professional had higher chances of reiterating income. Based on their research, the authors conclude that financial professional directors are more appreciated by a corporation in terms of offering supervision of financial reporting exercises.

Klapper, Leora F., and Inessa Love. “Corporate Governance, Investor Protection and Performance in Emerging Markets.” Social Science Research Network, World Bank Policy Research Working Paper No. 2818, Mar. 2002, ssrn.com/abstract=303979.

In this paper, the focus is on the investigation done on the correlation with policies and the financial industry dialing in on nation-wide stockholder security measures as well as the contrast in policies trans countries. The authors expand on that research and offer a perspective on corporate governance practices for firms in developing markets and a look at in which circumstances corporate governance thrives more. In their trials, the results determine that optimal corporate governance is likely connected to improved performance and value of market. Klapper and Love also discover that corporate governance requirements for firms play a significant role in nations that are described to have vulnerable legal backgrounds. The conclusions of their research advices the actions that corporations can take to upgrade themselves is to find a foundation of decent corporate governance and offer protection to the firm’s investors. Their results depict the corporate governance for firms and their performance turns out to be less in nations that have vulnerable legal backgrounds, in which advising enhancement of legal procedures.

Adams, Renee B., et al. “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework & Survey.” Social Science Research Network, Charles A. Dice Center Working Paper No. 2008-21; ECGI – Finance Working Paper No. 228/2009; Fisher College of Business Working Paper No. 2008-03-020, 18 Nov. 2008, ssrn.com/abstract=1299212.

In this paper, Adams and the other authors examine different research on board of directors (BODs), which in particular they pay more attention to the research of Hermalin and Weisback’s 2003 assessment. They bring upon two integral inquiries that are frequently questioned about BODs which are what establishes their makeup? And actions? Generally, those questions are correlated in a way that makes the investigations of BODs difficult due to some ambiguity concerns. The paper zeroes in on the implications of the impact BODs have on corporate governance of a corporation and vice versa. Adams and his colleagues propose that most investigations of BODs can be collaboratively considered when conversing about director-selection process as well as the result of board infrastructure on board actions and corporations implementation.

Mülbert, Peter O. “Corporate Governance of Banks after the Financial Crisis – Theory, Evidence, Reforms.” Social Science Research Network, ECGI – Law Working Paper No. 130/2009, 17 Aug. 2009, ssrn.com/abstract=1448118.

In his paper, Mülbert dials in on the financial crisis of 2008 and how the lack of corporate governance of financial institutions played an integral role in the crisis. Bank firms around the world openly expressed that worthy corporate governance is a fundamental concern for firms which has caused them to implement corporate governance rules pertaining to a specific firm. Mülbert shows that financial institution supervisors started taking initiative in implementing a good corporate governance infrastructure into their respective firms. More specifically, Mülbert recognizes the Basel Committee on Banking Supervision for having issued two publications of corporate governance guidelines which highlight how supervisor’s observe corporate governance and how they should approach the lack of corporate governance. While there were many financial institutions that had begun implementing an enhanced corporate governance to their firms globally and within national borders, Mülbert takes a closer look at the modifications that were taking place in the aftermath of some corporate governance research. The author also brings out the reoccurring issues banks have with its corporate governance when insufficiencies exist in the monitoring and control of financial institutions. The interests of shareholders and supervisors isn’t particularly on par with one another, which is the case for short and long-term circumstances. Mülbert settles the paper with a few outtakes from financial institution’s corporate governance. Due to a few quirks which may have been caused by deposit insurance and such, it raises the questions if corporate governance of financial institutions should be the foundation for the general topic of corporate governance itself.

Clarke, Donald C. “Corporate Governance in China: An Overview.” Social Science Research Network, China Economic Review, Vol. 14, 2003, Pp. 494-507, 14 Aug. 2003, ssrn.com/abstract=424885.

In his paper, Clarke proposes that is due time that corporate governance makes its way to China. He shows that China’s corporate governance dials in on the agency difficulties that exists in two kinds of companies which are State-Owned Enterprises (SOE) and Listed companies. The problem with Chinese corporate governance laws and institutions (CGLI) arises from procedures of sustaining ownership interest in companies. China was looking SOEs to be operated not only for maximizing its wealth but for efficiency. Clarke states that a factor in the state controlling enterprises is utilization of power for various reasons. As a result, this complicates many matters. The goals that were created by the state are difficult to measure, which in turn creates monitoring complications. Next, the participation of the state creates a notion that it manages and controls shareholders and others. While the reason for the state is not necessarily prioritizing maximizing value for a company, it misuses shareholders way of profiting from their stock. The article mainly discusses China’s motive of altering SOEs to function more proficiently via introducing innovative and unique procedures. However, law creators found a reason to alter the policies of ensuring that state ownership does not diminish.

Coffee, John C. “A Theory of Corporate Scandals: Why the U.S. And Europe Differ .” Social Science Research Network, Columbia Law and Economics Working Paper No. 274, Mar. 2005, ssrn.com/abstract=694581 .

In this article, Coffee points the unexpected turn events that lead to some financial repercussions in the U.S. in the years of 2001 and 2002 which brought up the initiation of the Sarbanes-Oxley Act of 2002. He also shows that, while the circumstance in the United States was not going smoothly, there was a stock market crash across the globe which relentlessly impacted Europe. However, despite the stock market crash, there were no connection between scandals and the crash in Europe. As a matter of fact, the scandals that had occurred in Europe descended from America. Coffee proposes that various types of scandals portray different corporate governance systems. The author depicts the difference between disseminated and concentrated ownerships where corporate governance in disseminated ownership is used to earnings management, where as corporate governance for concentrated is less exposed and seizes power of private benefits. Coffee uses Parmalat to utilize it for its scandal in Europe. The author proposes the difference between the corporate governances and the financial scandals in the United States and Europe provides consequences for both countries/continents. A successful system in one place does not guarantee its success in another place.

Brown, Lawrence D., and Marcus L. Caylor. “Corporate Governance and Firm Valuation.” Social Science Research Network, Journal of Accounting and Public Policy, Vol. 25, No. 4, 2006, 7 July 2005, ssrn.com/abstract=754484 .

In this journal, Brown and Caylor reference two corporate governance measurement tools to measure a firms value. The first measurement is the G-Index, created by Gompers and his colleagues (Ishii and Metrick), which was founded on twenty-four (24) requirements related to a firm and depicted that the value of self-governing firms tended to be more valuable. While, Bebchuck and his colleagues (Cohen and Ferrell) founded the entrenchment index which was focused on six (6) requirements that boasted Gomper et al.’s (2003) G-Index results. Brown and Caylor constructed a corporate governance measurement of their own called the Gov-Score, fifty-one (51) requirements related to a firm characterizes the internal and external portions of a firm’s corporate governance. The authors’ conclusions verify Bebchuck and his colleagues’ research of only a few requirements of corporate governance are correlated to a firm’s value. In Brown and Caylor’s Gov-Score, the fifty-one (51) corporate governance requirements they reflected on had five (5) that were connected to accounting strategies. The authors discourse that SOx or other major stock exchanges of US authorized a requirement of corporate governance for valuating a firm. Brown and Caylor deliver a substitute for the measurement of G-Index by highlighting the benefits of their Gov-Score.

Works Cited

Adams, Renee B., et al. “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework & Survey.” Social Science Research Network, Charles A. Dice Center Working Paper No. 2008-21; ECGI – Finance Working Paper No. 228/2009; Fisher College of Business Working Paper No. 2008-03-020, 18 Nov. 2008, ssrn.com/abstract=1299212.

Agrawal, Anup, and Sahiba Chadha. “Corporate Governance and Accounting Scandals.” Social Science Research Network, AFA 2004 San Diego Meetings, Sept. 2004, ssrn.com/abstract=595138 .

Bebchuk, Lucian A., et al. “What Matters in Corporate Governance?” Social Science Research Network, Review of Financial Studies, Vol. 22, No. 2, Pp. 783-827, February 2009; Harvard Law School John M. Olin Center Discussion Paper No. 491 (2004), 21 Sept. 2004, ssrn.com/abstract=593423.

Brown, Lawrence D., and Marcus L. Caylor. “Corporate Governance and Firm Performance.” Social Science Research Network, Georgia State University, 27 Sept. 2004, ssrn.com/abstract=586423.

Brown, Lawrence D., and Marcus L. Caylor. “Corporate Governance and Firm Valuation.” Social Accounting and Public Policy, Vol. 25, No. 4, 2006, 7 July 2005, ssrn.com/abstract=754484 .

Bushman, Robert M., and Abbie J. Smith. “Financial Accounting Information and Corporate Governance.” Social Science Research Network, JAE Rochester Conference April 2000, 28 Apr. 2002, ssrn.com/abstract=253302.

Cheffins, Brian R. “The History of Corporate Governance.” Social Science Research Network, OXFORD HANDBOOK OF CORPORATE GOVERNANCE, Mike Wright, Donald Siegel, Kevin Keasey and Igor Filatotchev, Eds., Oxford University Press, 2013; University of Cambridge Faculty of Law Research Paper No. 54/2011; ECGI – Law Working Paper No. 184/2012, 22 Dec. 2011, ssrn.com/abstract=1975404.

Clarke, Donald C. “Corporate Governance in China: An Overview.” Social Science Research Network, China Economic Review, Vol. 14, 2003, Pp. 494-507, 14 Aug. 2003, ssrn.com/abstract=424885.

Coffee, John C. “A Theory of Corporate Scandals: Why the U.S. And Europe Differ .” Social Science Research Network, Columbia Law and Economics Working Paper No. 274, Mar. 2005, ssrn.com/abstract=694581 .

Erkens, David H, et al. “Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide.” Social Science Research Network, Journal of Corporate Finance, Vol. 18, 2012., 15 Jan. 2012, ssrn.com/abstract=1397685.

“Europe’s Enron.” The Economist, The Economist Newspaper, 1 Mar. 2003, www.economist.com/node/1610552.

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Gugler, Klaus Peter, et al. “Corporate Governance and the Returns on Investment.” Social Science Research Network, EFA 2002 Berlin Meetings Presented Paper; and ECGI – Finance Working Paper No. 06/2003, 23 Apr. 2003, ssrn.com/abstract=299520.

Holmström, Bengt R. “Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s.” Social Science Research Network, MIT Dept. of Economics Working Paper No. 01-11, 21 Feb. 2001, https://ssrn.com/abstract=261112.

Holmström, Bengt R., and Steven N. Kaplan. “The State of U.S. Corporate Governance: What’s Right and What’s Wrong?” Social Science Research Network, ECGI – European Corporate Governance Institute, 8 Sept. 2003, ssrn.com/abstract=441100.

Klapper, Leora F., and Inessa Love. “Corporate Governance, Investor Protection and Performance in Emerging Markets.” Social Science Research Network, World Bank Policy Research Working Paper No. 2818, Mar. 2002, ssrn.com/abstract=303979.

Larcker, David F., et al. “How Important Is Corporate Governance?” Social Science Research Network, University of Pennsylvania, 28 Sept. 2004, ssrn.com/abstract=595821.

McKay, Douglas R, et al. “Corporate Governance and Business Ethics.” Plastic Surgery, Pulsus Group Inc, 2015, www.ncbi.nlm.nih.gov/pmc/articles/PMC4664146/.

Mülbert, Peter O. “Corporate Governance of Banks after the Financial Crisis – Theory, Evidence, Reforms.” Social Science Research Network, ECGI – Law Working Paper No. 130/2009, 17 Aug. 2009, ssrn.com/abstract=1448118.

Murphy, Austin. “An Analysis of the Financial Crisis of 2008: Causes and Solutions.” Social Science Research Network, 4 Nov. 2008, ssrn.com/abstract=1295344.

Palepu, Krishna, and Paul M. Healy. “The Fall of Enron.” Social Science Research Network, Journal of Economic Perspectives, Vol. 17, No. 2, Spring 2003, 17 Oct. 2003, ssrn.com/abstract=417840.

Romano, Roberta. “The Sarbanes-Oxley Act and the Making of Quack Corporate Governance.” Social Science Research Network, NYU, Law and Econ Research Paper 04-032; Yale Law & Econ Research Paper 297; Yale ICF Working Paper 04-37; ECGI – Finance Working Paper 52/2004, 27 Sept. 2004, ssrn.com/abstract=596101.

Subramanian, Guhan. “Corporate Governance 2.0.” Harvard Business Review, 10 Feb. 2015, hbr.org/2015/03/corporate-governance-2-0.

Winter, Jaap W. “The Financial Crisis: Does Good Corporate Governance Matter and How to Achieve It?” Social Science Research Network, DSF Policy Paper No. 14, 14 Dec. 2011, ssrn.com/abstract=1972057 .

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