Theories of Corporate Governance: A Critical ...

Theories of Corporate Governance: A Critical Analysis

Author Name : Dr Arijit Sen

ABSTRACT

Development of Corporate Governance (CG) has been affected by different theories from different domains like economics, law, finance and management. In addition, these theories provide the foundation for development of different models of CG practiced throughout the world. In the wake of various financial scams (the Satyam scam case being the most prominent) in India and in the context of the global financial crisis the need of the hour is to develop an effective CG system in order to prevent the occurrence of such scams. Thus, Abdullah and Valentine (2009) correctly stated that an effective CG system cannot be developed by one theory but by combination of various theories addressing not only the social relationships but also emphasizing on the legislation and rules and stricter enforcement surrounding good CG. Therefore, the need of the hour is to re-visit CG in the light of the convergence of the theories (mentioned in this study) with a fresh angle which has a holistic view and incorporating subjectivity from the perspective of social sciences.

This descriptive study provides a detailed analysis of the different theories of CG. In other words, this paper critically reviews the main theory i.e. agency theory along with other theories like stewardship theory, stakeholder theory, resource dependency theory and transaction cost theory. It also reveals the differences among these theories, spanning over different disciplines with diverge scope. Thus, this study acts as a guide and foundation for academics and researchers for the development of an effective CG system addressing not only the social relationships but also emphasizing on the legislation and rules and stricter enforcement surrounding good CG.

Keywords: Agency Theory, Corporate Governance, Descriptive study, Stakeholder Theory.