Why Corporate Governance Becomes Important Now
CORPORATE GOVERNANCE LESSONS:
CORPORATE GOVERNANCE SUCCESSES AND FAILURES
|Student Name: Binish Nida Afaque |
|
WHY CORPORATE GOVERNANCE BECOMES IMPORTANT NOW?
Corporate Governance standards are changing now. The 2008-2009 global financial crisis hit almost the whole world and causes the economic meltdown and recession not only in developing countries but in many rich and developed countries. That is why the debate on the importance of state intervention and its role in companies and their businesses started once again and gaining strength.
We all know that before the financial crisis, USA was one of the biggest capitalist states and Government intervention was low in the private sectors letting the companies specially the financial institutions to perform such business practice which were ethically wrong.
When the oil prices were decreased after the 1997-1998 crises in gulf region, the dollar gained strength the strong dollar increases the buying power of US citizens and their spending habit. Because of cheap oil the productivity was also increased. The interest rates were low at that time and borrowing was cheap. House finance, car finance, credit cards markets were at boom. Because of surplus money and cheap loans people were spending more and asset markets were flourishing at rapid speed, creating asset bubble. Financial institutions were offering mortgage loans and they over valued the asset prices in calculating the value of asset which was to be used as a security in mortgage loans.
When the default rates increased because of their loose credit policies and fragile risk management, the banks could not recover their investment amount because over valued asset did not pay them back as the asset bubble was burst and the real estate market was collapsed. Most of the financial institutions were also defaulted. The US Govt. did not bail out the Lehman Brothers after they announced the bankruptcy. This created
CORPORATE GOVERNANCE SUCCESSES AND FAILURES
|Student Name: Binish Nida Afaque |
|
WHY CORPORATE GOVERNANCE BECOMES IMPORTANT NOW?
Corporate Governance standards are changing now. The 2008-2009 global financial crisis hit almost the whole world and causes the economic meltdown and recession not only in developing countries but in many rich and developed countries. That is why the debate on the importance of state intervention and its role in companies and their businesses started once again and gaining strength.
We all know that before the financial crisis, USA was one of the biggest capitalist states and Government intervention was low in the private sectors letting the companies specially the financial institutions to perform such business practice which were ethically wrong.
When the oil prices were decreased after the 1997-1998 crises in gulf region, the dollar gained strength the strong dollar increases the buying power of US citizens and their spending habit. Because of cheap oil the productivity was also increased. The interest rates were low at that time and borrowing was cheap. House finance, car finance, credit cards markets were at boom. Because of surplus money and cheap loans people were spending more and asset markets were flourishing at rapid speed, creating asset bubble. Financial institutions were offering mortgage loans and they over valued the asset prices in calculating the value of asset which was to be used as a security in mortgage loans.
When the default rates increased because of their loose credit policies and fragile risk management, the banks could not recover their investment amount because over valued asset did not pay them back as the asset bubble was burst and the real estate market was collapsed. Most of the financial institutions were also defaulted. The US Govt. did not bail out the Lehman Brothers after they announced the bankruptcy. This created
References: 1. http://www.crss.pk (Pakistan and Global Financial Crisis) 2. http://www.oecd.org/document 3. http://www.cipe.org/blog 4. http://www.tradingmarkets.com/.site/news/Stock%20News/2751483 5. http://newsroom-magazine.com/2010/governance/financial-crisis-governance/lehman-brothers-a-case-study-in-our-systems-failures/ 6. Corporate Governance Failure and its Impact on National Australia Bank’s Performance by Dianne Thomson and Ameeta Jain, Journal of Business Case Study, First Quarter March 7. Yukos Oil: A Corporate Governance Success Story? , The Chazen Web Journal of International Business, 2003 8. http://greenrankings.newsweek.com/companies/view/johnson-johnson 9. http://www.investor.jnj.com/textonly/governance/principles.cfm