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The Importance of Corporate Governance

November 15th, 2013

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Corporate Governance encompasses the mechanisms within a corporation that ensures the managers’ interests are aligned with those of the shareholders.  In doing so, he/she may be a risk-taker, but why?  How does a firm make a CEO accountable for his/her actions or the firm’s performance?  Research on Corporate Governance studies the correlation between a CEO’s compensation package as a motivator to take risks, benchmarking CEOs’ pay, and the optimal functionality of a Board of Directors.  The understanding of Corporate Governance has not just practical relevance for a firm, but also implications at the policy level.

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