Q1: Discuss three key components of corporate governance in a company: common shareholders, board of directors,...

Q1: Discuss three key components of corporate governance in a company: common shareholders, board of directors, and management.

Q2: What is agency problem? any real-world examples?

Q12: Discuss the relationship between unemployment rate and stock market performance.

Solutions

Expert Solution

1.The role of common shareholders is to be aware and enforce the proper disclosure on the management . common shareholders should be highly aware about the different operations.They are the one who vote and pass on the important decisions of the company so they should always promote fair and ethical decisions.

The role of board of directors is to assist in corporate governance by supervising executive management and make strategic decisions for the company.The board of directors holds a fudiciary position and expected to act in shareholder's best interests.

The role of management is to ensure financial reporting quality ,operational efficiency, and compliance with different rules and standard to promote the effectiveness of corporate governance.

2.Agency problem is a conflict of interest between the principal and his authorized agent.It is an inherent problem under which one party is expected to act in another's best interest.

Example of agency problem would be Lehman's crisis in which the management was taking excessive leverage and risk in it's best interest ignoring that of the shareholders. Management and board of directors are expected to act in shareholder's best interest as they are the principal.

3.The relation between the unemployment rate and stock markets is of Inverse in nature.

As the unemployment rate will go up, The stock markets will go down as there are not enough jobs for the people in the economy.

As the unemployment rate goes down,It means that there are enough jobs creation in the overall economy and it is a good signal for the stock markets and stock markets go up in such scenario.

jeff jeffy answered 1 year ago

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