The influence of management on the financial stability of the company - Дипломная работа

Introduction All the players on the financial market expect to obtain the potential gains from different opportunities, so that they are interested in aspects that affect the performance. As for key indicators researchers consider external factors to explore how some shocks of the financial market affects the companies’ operations. However, the reason might be inside of the company as a response to the external shocks. A possible explanation comes to the corporate governance quality. Under “corporate governance system” we assume a set of mechanisms that mitigate agency conflicts involving managers and shareholders, the interests of the latter represented by the Board of directors. Generally, the following players are involved in the operational process: employees, top management, shareholders, Board of directors and government. In practice, the researchers highlight three major types of corporate governance systems: the “Anglo-American” system (the US and UK), the “Continental” system (Germany, Italy and France) and the “Extended” system (Japan). The Anglo-American system relies on the single-tiered Board that consists of non-executive directors selected by shareholders. Moreover, in the US companies CEO usually serves as a chairman as well. The Continental system includes a lot of constrains, it mainly concerns the employees. Besides, many countries require the two-tiered Board to distinguish executive and non-executive directors. The Anglo-American system looks more appropriate than two others do. In our settings, we consider American companies where corporate governance model emphasizes the interests of shareholders. Usually, the Board of directors also includes executives from the company. Moreover, the CEOs serve as chairmen in majority of companies despite the widespread statement about effective separation of these roles. The primary goal of this study is to figure out whether the corporate governance system affects the company performance, especially in case of the financial crisis. As soon as recession enhances the functioning of all institutions, induction of time effect makes the study more innovative. Furthermore, our research includes the data about executives’ total compensation elements reflecting the motivation for management to perform better. This indicator serves as a very good proxy for the quality for the managerial decisions. From the world economic history, we can find many examples when the financial problems resulted from the inefficiency of the authorities. For instance, accounting frauds of Enron, WorldCom and Lehman Brothers were world-shaking in 2001, 2002 and 2008, correspondingly. Information hiding and fraudulent transactions were the keystones of the bankruptcy in each scandal. It cannot be ruled out whether there was slackness in corporate governance. For the reason, the absence of confidence between the CEO and the Board of directors led to concealment of full timely intelligence. “The effective system of corporate governance should include not only a valid organization structure, but also strong operational team, where members trust each other and able to connect successfully”. corporate governance correlation financial After the financial crisis of 2008 OECD released a report where it has stated that one of the most important causes of economic meltdown was the weakness of corporate governance in major financial institutions of the US and Europe. We take into account the evidence of the financial crisis in order to test the ongoing hypothesis. Our attention is focused on the aspects of corporate governance, which affect the company performance in conditions of uncertainty and high risks under consideration of the US companies using the regression analysis with panel data. We test four models with different company performance measures: Tobin’s q, return on invested capital (ROIC), earning per share (EPS), and growth rate of sales. As key explanatory variables, we identify CEO pay package elements, the board structure and the attendance in other major company boards. As control variables, two indicators are considered: size of the company (the natural logarithm of sales), capital structure (gearing).