Three Characteristics Of Corporate Governance

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Corporate governance is a structural branch through which banks set a range of targets and means by which they monitor the performance. Effective corporate governance encourages the bank to operate safely and use resources efficiently. Corporate governance relates to how the banking business is governed: it consists of a series of relationships between management, board, shareholders and stakeholders. Lenders and other providers of funds are more willing to provide funding when they feel safe on corporate governance. Good governance tends to reduce the cost of capital because it reflects the sense of low risk and this translates into the compliance desire for smaller return to shareholders. Good corporate governance improves performance and…show more content…
(Trayler, 2007). The importance that a financial institution has for the whole stability of state is considered the second key component. This has led most governments to regulate their own financial…show more content…
Levine and Caprio (2002) cite the specific characteristics of banks and other financial institutions that exacerbate the problem of corporate governance. They identify three characteristics of banks that distinguish them from other enterprises and emphasize their relevance. First, banks are complicated, qualities that intensify the problem employer – agent. The complexity of banks brings (i) more difficulties for shareholders to monitor managers, (ii) makes it easier about managers and big investors to get the benefits of control, rather than to maximise the value of company (iii) makes it impossible to outside bidders to create the takeover threat, and (iv) increase the likelihood that a monopoly sector succeeds in reducing the impact on corporate governance mechanisms through competitiveness. Secondly, banks are highly regulated; that imposes natural barriers to corporate governance mechanisms. Measures, such as deposit insurance, restrictions imposed by regulators related to the property, restrictions by regulators for market entry, purchasing, banking activities, etc., all have side effects in the mechanisms of control management designed by shareholders. The limitation of the number of shares for an owner and the ban on violent purchases, weaken the mechanisms of corporate governance, due to

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