EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
Question
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Chapter 29, Problem 1P
Summary Introduction

To discuss: The characteristic of corporations which make the need for a system to check on manager behavior.

Introduction:

Corporate is a particular legal entity that separates from its owners. In this form of business, the owners specifies certain governing rules to undertake the business in a contract knows as the articles of incorporation. The board of director of a corporate consists of three members which are as follows:

  • Gray directors
  • outside directors
  • Independent directors

Expert Solution & Answer
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Explanation of Solution

The corporation is a legal entity who separates the ownership and management responsibilities of an enterprise. Here, the people who control the management operations and one who have invested/spent money in the corporation are not the same people. This separation between the management and investors of a corporation can create conflict between them. As a result of the conflict between the investors and managers, there is a need that arises for the investors to develop a system mainly for checking the behavior of managers. This system is corporate governance system.

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