To discuss: The characteristic of corporations which make the need for a system to check on manager behavior.
Introduction:
Corporate is a particular legal entity that separates from its owners. In this form of business, the owners specifies certain governing rules to undertake the business in a contract knows as the articles of incorporation. The board of director of a corporate consists of three members which are as follows:
- Gray directors
- outside directors
- Independent directors
Explanation of Solution
The corporation is a legal entity who separates the ownership and management responsibilities of an enterprise. Here, the people who control the management operations and one who have invested/spent money in the corporation are not the same people. This separation between the management and investors of a corporation can create conflict between them. As a result of the conflict between the investors and managers, there is a need that arises for the investors to develop a system mainly for checking the behavior of managers. This system is corporate governance system.
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Chapter 29 Solutions
Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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