What is the Importance of Corporate Governance (CG)? As a result of globalization and the increasing complexity of business, there is a greater reliance on the private sector as the engine of growth in both developed and developing countries. Organizations do not exist in a vacuum; they rather interrelate with several interest groups, known as stakeholders. These stakeholders include shareholders, governments, regulatory bodies, creditors, and the general public. Stakeholders are impacted by the activities of companies. In this regard, and the context of this study, adequate and effective corporate governance disclosure becomes relevant to investors and other stakeholders from several standpoints.
Effective corporate governance disclosure promotes transparency in corporate structures and operations. It strengthens accountability and oversight among managers and board members to shareholders. This oversight and accountability combined with the efficient use of resources improved access to lower-cost capital and increased responsiveness to societal needs and expectations leads to improved corporate performance. Many studies exist linking good corporate governance with better Performance. Fianna and Grant explain that good corporate governance helps to bridge the gap between the interests of those that a company, by increasing investor confidence and lowering the cost of capital for the company.
Furthermore, they also add that it also helps in ensuring the company honors, its legal commitments, and forms value-creating relations with stakeholders. Coles et al. and Durnev and Han, also found that companies with better corporate governance enjoy higher valuation. These studies’ results, helps in confirming the idea of good corporate governance, resulting in better decisions at all levels of the organization, not at top-management and board levels, but also in the better performance of the organization
Again adequate and effective corporate governance disclosure ensures that corporate activities are run openly and transparently. Last, corporate governance practices boost market confidence and ensure effective allocation of capital in the market. From the foregoing discussions, the realization of the importance of good corporate governance practices is largely dependent on several internal factors. As a way of achieving this, several principles have been established.
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