Management Monitoring And Firm Performance Case Study
From previous years, corporate governance (CG) reforms provided a significant important function comply with regulations. The reforms does play an important role in improving transparency and accountability that appear in three key areas which are benefits in the provision of quality financial reporting, reduction in management overconsumption and improved management monitoring (Psaros 2009, p25). There are numerous researches proved that the focus on the impact of management monitoring. In particularly, factors which are turnover of CEO, Equity-based board of directors (BoDs) compensation, board independence and innovative knowledge assets could have correlation …show more content…
This indicates that after SOX is independent of the governance effects of director ownership, the reversal of the relationship between board independence and operating performance arises (Bhagat and Bolton 2013, p123).
IV. Innovative knowledge assets
He and Wang (2009) state in their research the innovative knowledge assets are a key for firm performance but it could cause agency problem which between manager and owners also gives manager more power in making resource deployment decisions. This would weaken role of monitoring but increase the effectiveness of incentives. This indicates that when developing the innovative knowledge assets, the agency costs could be very high. A strong innovative knowledge base can increase a firm’s rent generation potential by strengthening its ability to take advantage of opportunities in product markets (Gopalakrishnan, 2000).
Results and …show more content…
The impact of corporate governance in management monitoring is complicated. Forced CEO turnover protect shareholder’s interests and force CEO to act incentive when Board of directors gather “soft” information. However, if the shareholders collect “soft” information but do not have power to fire a CEO who acts poor performance, the firm’s performance will not have an effective influence. BoD compensation will align between shareholder and managers’ interests in long term. Moreover, the compensation of directors improves the monitoring. However, in practice pay for performance approach is too weak to align the interests between two parties in long term. They may manipulate report and cheat on the numbers. The influence in board independence divided into two periods, which is pre-2002 and post-2002. The relationship between board independence and firm performance in pre-2002 is negative, yet post-2002 period is positive. The main reason is the SOX force. Finally, innovative knowledge assets are an interesting part, although it will weaken the management monitoring, increases the incentives. The agency cost would be high. A strong innovative knowledge asset at the end still could help firm