Corporate Finance I

Reading 31. Introduction to Corporate Governance and Other ESG Considerations

Learning Outcome Statements

h. identify potential risks of poor corporate governance and stakeholder management and identify benefits from effective corporate governance and stakeholder management;

CFA Curriculum, 2020, Volume 4

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Subject 7. Corporate Governance and Stakeholder Management Risks and Benefits

From a corporation's perspective, risks of poor governance include:

  • weak control systems or inefficient monitoring tools;
  • ineffective decision making;
  • legal, regulatory, and reputational risks;
  • default and bankruptcy risks.

Benefits of effective governance and stakeholder management include:

  • better operational efficiency and control brought by effective monitoring tools and control mechanisms;
  • better operating and financial performance;
  • lower default risk and cost of debt.

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