Corporate governance Essay Example | Topics and Well Written Essays - 1750 words

Corporate governance - Essay Example uthor, difficulty of identifying a causal effect is aggravated due to lack of conclusive theories, which enable researchers worldwide to regard a specific corporate governance code as good or bad. Corporate governance framework established within companies need to incorporate core values of accountability, transparency, responsibility and fairness (ACCA, â€Å"Disclosures on corporate governance†). Even so, reported high profile financial scandals such as, those of Enron and WorldCom, suggest that the framework was not implemented at all. Weak corporate governance and untrustworthy financial reporting were cited as major reasons behind these scandals. These facts called for the need to establish robust corporate governance framework among organizations all over the world. Following this incidents, many laws were passed such as, Cadbury Report in United Kingdom, Sarbanes Oxley Act in the United States, the Dey Report in Canada, the Vienot Report in France, the Olivencia Report in Spain, the King’s Report in South Africa, Principles and Guidelines on Corporate Governance in New Zealand and the Cromme Code in Germany. Some authors claim that these laws have proven to be immensely successful in achieving objectives of transparent financial reporting; whereas, some authors have conveyed their options against efficacy of these laws. A significant proportion of research has investigated whether quality of financial reporting is influenced by various disclosure requirements of corporate governance. The results of these empirical researches are mixed. For example, research done by Armstrong, et al (2010) fails to provide conclusive results regarding ways in which managerial compensation influences quality of financial reporting. Cheng and Warfield (2005) have pointed out that a negative relation exists between managerial incentives and the standard of financial reporting. According to them, managerial incentives are amplified on the basis of their performance and not