Effective corporate governance and efficient board structures will have a positive effect on long term share prices Essay

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Birmingham Business School

Student ID Number:

1439329

Programme of Study:

MSc International Business

Module:

Issues in Management 07 24242

Assignment Title:

Issues in Management Essay

Date and Time of Submission:

26.01.2015 11:00

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Effective corporate governance and efficient board structures will have a positive effect on long-term share prices January 2015

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Contents
Introduction
.......................................................................................................................................... 4 Overview of the Research Problem ................................................................................................. 4 Literature Review ................................................................................................................................ 4 Critical Evaluation ............................................................................................................................... 7 Conclusion ........................................................................................................................................... 8 References ........................................................................................................................................... 9

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Introduction

Corporate governance has become a frequently discussed topic in academia in recent years, as it is increasingly associated with ensuring long-term sustainability and positive business growth. As the number of companies establishing public limited liability businesses continues to rise, the share price of the company is now used to measure its overall performance. Thus, this study aims to investigate the impact of corporate governance principles on a company’s share price.

Overview of the Research Problem

There are many different factors that can influence share price, including fluctuations in supply and demand, earnings per share (EPS), net fixed assets and several additional economic variables. Malik (2012:241) asserts that these influencing factors can be categorised as macro or micro-economic variables, the former including political and economic factors, such as state policies or business structures, and the latter including internal factors such as organisational development and management structures.
Furthermore, it has been discovered that the effectiveness of corporate governance practices has a significant effect on share price and an effective board of directors is required to ensure that the company implements corporate governance strategies effectively.
Several studies have also emphasised the impact of a company’s ownership structure on share price, as major shareholders are generally keen to implement new strategies if the business fails to thrive. Thus, according to McConnell and Servaes (1990:596), it is clear that the functionality of the board determines the performance of the business and the value of its stock.
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