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To see the market mechanism on the Board of Directors of the Company from the agency costs

Author: LuMing¡¡GuanZhiMing From: www.yourpaper.net Posted: 2009-10-10 21:30:28 Read:
[Abstract] corporate governance from a broad sense to include the external governance and internal governance, external governance market mechanism has an important influence on corporate governance. Generated by the company due to the separation of ownership and management rights agency cost problem is a chronic problem of corporate governance, company managers (directors) through the establishment of product markets, management of market and capital market competition mechanism, incentives and restrictions will be beneficial to alleviate the agency costs, and competition mechanism to fully realize their role, need to reconstruct the Board of Directors of the Company and adjust

In the history of the legal system development process, the company has gone through the process of unity by the ownership and management rights to the separation of ownership and the ownership and management of modern companies. Funders such enterprise system owner is not directly involved in the operation and management of the company, the owners and operators of incentive incompatibility interests are not entirely consistent, asymmetric information, resulting in the corporate governance process problem - proxy issues.

First, the agency problem generated

The market as a mode of resource allocation, is the ideal way far the practice of human knowledge can be generated, which is due to its ability to achieve Pareto optimal allocation of resources. To achieve Pareto optimality, they are bound to assume that the goal of corporate behavior to maximize profits, and this principle is also embodied the logic of capital funders. Departure from the "invisible hand" of the market economy only, and will result in the interests of the owners of capital must be thoroughly. "Visible hand" of departure from the modern industrial and commercial enterprises this in turn lead to the separation of ownership and control, and thus the owners (the principal) had to risk the consequences of control over the behavior of people (agents) responsibility, thus to produce a so-called "agency problem". Modern companies, control over the main agent ownership main comprehensive business management of the company, and thus there is control over the main body of the ownership of the main interests of the maintenance issues.
The company's legal system designers are aware of these problems, but due to the modern company large-scale, social division of refinement, making any capital owners able to afford on their own from the company's management important task. Faced with this dilemma, the designer of the system sought by the shareholders' meeting of the Board of Directors elected from within the company, the Board, the manager to the final decision on major matters of the Company or by the Board of Supervisors or outside directors (independent directors) personnel to perform the duties of supervision of the terms of reference to achieve the purpose of reducing the agency problems against the owners of capital. System design, played a certain role in mitigation relieve the agency cost problem. But the company's managers, supervisors have been driven by their own interests Economic Man, in which they will be subject to its socio-economic level of knowledge and cultural as well as historical background, rather than a completely rational or philosophy supremacy person. This makes the utility of existing system design can not be as perfect as its theoretically envisaged, at the same time, the design of the system there are flaws and defects, the implementation of the law applicable process weak, exacerbated by the agency cost problem for corporate governance the negative impact.
Agency cost problem, the existing system is designed mostly from the company's internal regulations through decentralization mechanisms, effects and poor author from the company's external environment, especially from the point of view of fair competition in the market to discover reduce agency costs countermeasures.

Second, the presence of market competition mechanism to have a greater impact on the Board of Directors

A fully competitive free market competition in the products market, management and capital markets, three markets. Due to the presence of these three market competition mechanism, creating a company, including corporate development, as well as the survival of the fittest between them, one after another has set a world giant company's image.
Under the conditions of a market economy, in addition to the franchise class industry as well as some of the state-controlled or natural monopoly industries, generally in the product market there price game products between manufacturers, operators and consumers. Modern companies, the reasons between the interests of owners and operators exist differences incomplete information, the lack of effective supervision of the manager's behavior. The same time, the development of the modern corporate system is not completely so not into the history of the corporate (enterprise) unity of ownership and management of those owners, this classical pursuit of profit maximization is still a place in the modern market economy. The existence of a large number of owners of the enterprise, because there is competition in product markets, managers have a great binding, managers have to dedication, hard work and try to improve the quality of the product, in order to keep the company's products in the market share it where the company will not be eliminated by the market, and this constraint to some extent reduce the cost of agent.
But the success or failure of the enterprise, not only with the quality and price of the product, operating managers of the talent and diligence have an important relationship with the company. Fama manager is considered one of the key, because he will be an enormous amount of wealth (human capital) leased to a specific enterprise. Given or determined by the management of the labor market, human capital rental rate, depending on the success and failure of the enterprise, a stake in the success or failure of the enterprise managers, so the success or failure of the enterprise information window to reflect managers to efforts . Managers of the value of human capital will depend on the business performance of the enterprise, and the business performance of the enterprise is jointly operated by the results of all the managers of the entire enterprise, but the most significant effect on the top management decision-making behavior, which top management constraints It's the most important. When poor business performance or decline, operators and managers of the shareholders' meeting may be replaced, or the enterprise business failure, bankruptcy and forced to return to the labor market (managers). Other companies through his history of operating results and evaluation of the value of its human capital, the constraints of this market mechanism will enable managers to work hard, do their diligent able. But our country at this stage for a large number of former shareholders of the Company for the restructuring of state-owned enterprises, there are still government-designated system of company managers, has been changed because affect political operation mechanism of the status quo of this arrangement can not in the short term, while the managers of the company's market also should be strengthened to reduce agency costs, in this case, I believe that in our current legal system, it is necessary to re-define the qualifications of directors.
The American Finance Association, Xizhan Sen pointed out that, in the capital market, the four control mechanisms of the law - political - laws and regulations, products and production factor markets and internal control system, the legal - political - rules and regulations, the reaction is too slow, the product and factor markets The reaction is too slow, the internal control system fundamentally failed, so only the external control mechanism of the capital market, this company works. While some of his views extreme, but you can not deny that he gave away the important effect of equity capital markets in corporate governance. Managers in the course of business the company, there is the risk of moral hazard, securities capital markets can use the company to take over, forcing the issue of control over the re-signing of a more effective contract between enterprise managers to solve business managers loose lazy. At this time, the status of managers are replaced by others dangerous, so they had to give up too much self-interested behavior, but willing to work hard for the interests of enterprises and work hard.

Third, the Board of Directors of the Company of shares under the pressure of market competition construct and adjust

The pressure of competition in the market will enable us to have from the point of view of the external governance to rethink the construction of the board of directors, and thereby within external combined to achieve the best combination, minimize agency costs.
First, paragraph 2 of Article 113 of the Companies Act 1993 provides that the chairman of the board in the shares of the company for the legal representative of the company. "Section 13 of the Companies Act 2005 modified to allow freedom of the Articles of Association to select the legal representative served as chairman of the board, the executive director or manager. Improve the efficiency of the Board of Directors in terms of an effective system of choice, but the uneven quality of the personnel director in view of the present stage, especially in the former state-owned enterprises from the restructuring of listed companies, the government-designated directors a higher proportion of more easily lead to arbitrary and monopolize power and, therefore, in the corporate governance system in China is not desirable to introduce the responsibility of the executive heads of the administrative work, while meeting system. Although the directorate responsible for the system can help improve the efficiency of the work, but because it is also the risk caused by the arbitrary, which may lead to agency costs climbed. Collective decision-making may be slower than a single individual decisions and tedious, but there will be more sensible and security. Empirical studies have shown that a single individual groups and organizations by scholars specializes in complete requires some creativity and a high degree of integration task organization are more suitable for the completion of the recommendations submitted by the individual advice and find errors and problems job. So, the "Company Law" by an individual system, as the legal representative of the company changed to the Board collectively as legal representatives of the system is imperative.
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