Stock Market Case

From the mid 1980s, the substantial increase in stock market in the Organization for OECD countries and the corporate failure have damaged the reputation of listed companies, which lead to an rising requirement of corporate governance to protect the stakeholder’s interest and restore the share market confidence to fairly enhance corporate profit and shareholder gain. L’Huillier’s article develops an updated research for better understanding what is corporate governance.

There are mainly six theories apply to corporate governance (Huillier 2014), which give different definition to corporate government because all those theory analysis and understand corporate from different aspect of theoretical origin.

Agency theory focus on economic relationships that regards everyone tries to maximize its utility, so there will be a conflict of interest between the shareholders and the managers. Corporate governance in the agency theory of view is in a given case, managers did not actively trying to maximize the shareholder value due to absent of enough reward to the managers and therefore the business failed to maximize the return to corporates with the least possible cost.

Stewardship theory focus on human relation management, it assumed that managers want to maximize organizational performance rather than self-interest. Under Stewardship banner, organizations should pay more attention on the structure of the business as well as the reallocating of power to managers to create largest stakeholder value.