Beta Estimation for Public Companies, ...
[vsw id=”HkoJ_nedolg” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Beta is an estimate of a company’s... Read More
[vsw id=”535QsiUC1UU” source=”youtube” width=”611″ height=”344″ autoplay=”no”]
Weaknesses in corporate governance practices and stakeholder management processes expose a company and its stakeholders to several risks. The reverse scenario is that effective corporate governance and stakeholder management practices can create several benefits for a company and its stakeholders.
Potential Risks
- One stakeholder group may benefit unfairly at the expense of other stakeholder groups due to weaknesses in a company’s control systems.
- Managers could make poor investment decisions that benefit them but are detrimental to the company’s shareholders.
- A company’s exposure to legal, regulatory, and reputational risks could become heightened. For example, a company may be subject to an investigation by a regulatory authority due to a violation of laws and regulations. The company could also receive lawsuits from one of its stakeholders due to some form of impropriety. These could potentially damage the reputation of the company and lead to significant legal costs.
- A company’s ability to honor its debt obligations may become hindered. This exposes it to bankruptcy risk if its creditors decide to take legal action against it.
Potential Benefits
- Operational efficiency could be improved.
- A company’s control systems may be enhanced due to the proper functioning of its audit committee and the effectiveness of its audit systems.
- Operating and financial performance could be improved and this may lead to a reduction in the costs that are associated with weak control systems.
- Business and investment risk may be lowered, thus reducing a company’s cost of capital and its default risk.
Question
Which of the following is most likely a benefit of an effective corporate governance structure?
- Default risk may increase.
- Operating performance may improve.
- Managers may make decisions which benefit them but not the shareholders.
Solution
The correct answer is B.
Improvement in operational and financial performance is a potential benefit of an effective corporate governance structure.
A is incorrect because effective corporate governance leads to a decrease, not increase in default risk.
C is incorrect due to the fact that when managers make decisions which only benefit them, they are not considering the interests of other stakeholders, namely shareholders.
Sergio Torrico
2021-07-23
Excelente para el FRM 2
Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé
AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
diana
2021-07-17
So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts.
The fun light-hearted analogies are also a welcome break to some very dry content.
I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
Kriti Dhawan
2021-07-16
A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them.
Thank you ! Grateful I saw this at the right time for my CFA prep.
nikhil kumar
2021-06-28
Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
Marwan
2021-06-22
Great support throughout the course by the team, did not feel neglected
Benjamin anonymous
2021-05-10
I loved using AnalystPrep for FRM.
QBank is huge, videos are great.
Would recommend to a friend
Daniel Glyn
2021-03-24
I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
michael walshe
2021-03-18
Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.