Corporate governance

What is corporate governance?

The framework of rules and practices by which a board of directors ensures accountability,
fairness, and transparency in a company's relationship with its all stakeholders (financiers,
customers, management, employees, government, and the community).
The corporate governance framework consists of:
(1) Explicit and implicit contracts between the company and the stakeholders for distribution of
responsibilities, rights, and rewards.
(2) Procedures for reconciling the sometimes conflicting interests of stakeholders in accordance
with their duties, privileges, and roles.
(3) Procedures for proper supervision, control, and information-flows to serve as a system of
checks-and-balances.
Corporate governance definition:
Corporate governance broadly refers to the mechanisms, relations, and processes by which
corporation is controlled and is directed; involves balancing the many interests of the
stakeholders of a corporation.

Value creation:
 Value creation is the primary aim of any business entity. Creating value for customers helps
sell products and services, while creating value for shareholders, in the form of increases in
stock price, insures the future availability of investment capital to fund operations.
First article
Value creation and value capturing in strategic management
studies

Abstract:

The purpose of the paper is to carry out a literature review of studies on value creation and value
capture in order to find possible gaps that represent still unexplored fields in strategic management.
A systematic approach allows a better understanding through an overview of current debate and the
identification of research gaps concerning human resources’ value creation and value capturing.
Literature review is central since it plays two basic roles: exploratory and confirmatory. In the
exploratory role, literature is used to show the current debate on value creation and capturing and to
underline the main research streams, while the confirmatory approach allows scholars and
practitioners to identify the research gaps and to verify if the current research has achieved
satisfactory and/or contradictory results.

Introduction:

It is generally assumed that all of the social sciences (law, economics, media, education,
behavioral science, etc.) are involved in the endeavor to maximize value. However, the
discipline that has been considered The Queen of the Social Sciences—economics—has often
looked at the notion of value from a perspective that is different from social value theory. This
has been especially evident when it comes to the difference between market ethics and social
value theory. In spite of the admonition of Adam Smith that the wealth of nations is based on a
company’s (or the economy’s) ability to maximize benefits for shareholders and stakeholders by
operating in line with the principle of value creation (operating more effectively and efficiently to
give the customer a better quality product at a lower price) market ethics do not always coincide
with this principle. Too often market ethics (the utilitarian effort to maximize benefits by creating
the competitive advantage) tend to compel companies to seek capturing value rather than
creating value (this was perhaps most pronounced in the dynamics connected with what caused
the proverbial domino to fall that resulted in the global financial crisis.

conclusion
– The purpose of this paper is to investigate the firm’s role in the value creation proces s. In
particular, after categorizing the activities that firms carry out to facilitate the creation of
value, the “value space,” an actionable framework within which different dimensions of
value creation are integrated, is developed and discussed..

Second artical
The Impact of Corporate Governance on Value Creation in
Entrepreneurial Firm

Introduction

The compliance with codes of corporate governance has become the norm for listed firms all
over the world. In most countries, Entrepreneurial firms do not have to comply with such codes
but it has been argued that such codes should also apply to these small medium enterprises
(SMEs). Since corporate governance forms the environment for the internal activities of a
company and appropriate environmental conditions are crucial for corporate entrepreneurship to
flourish in a company, it is apt that these two topics be discussed in relation with each other.
Corporate governance mechanisms may dampen value creation in firms if appropriate
measures are mandated by the regulators. This paper examines the implications of the
extension of corporate governance principles to SMEs and the impact this will have on value
creation through corporate entrepreneurship.

Applying Corporate Governance to Entrepreneurial Firms SME Sector

Companies are considered SMEs if they have at least 30% local equity, fixed productive
assets not exceeding $15 million and an employment size that does not exceed 200 workers for
non-manufacturing sectors. According to figures released by Singapore Department of
Statistics, the total number of SMEs in Singapore is about 105,000. The importance of SMEs in
Singapore cannot be more emphasized. 90% of companies In Singapore are SMEs and they
employ more than half of the workforce. However, the SMEs in Singapore only contribute 1/3 of
total value added in the economy and this pales in comparison to the SMEs in Hong Kong and
Taiwan. It is hence imperative that the capabilities of the SMEs be increased for the future of the
Singapore economy. The Singapore Government realizes this and aim to groom SMEs into
world class business entities. And to foster growth of a strong SME sector, the government
developed initiatives on the organizational, directional and professional level. The nature of
SMEs, family owned and managed, could impede the growth of SMEs. The SMEs tend to retain
ownership and management of the business (Tan & Fock, 2001). Professional management
practices are also not introduced but this is changing with the presence of government initiatives
to introduce new productivity practices.

Corporate Entrepreneurship

One additional note of considerations necessary to the impact the implementation of corporate
governance would have on value creation in entrepreneurial firms. The competitive edge of
entrepreneurial lies in the creativity and innovation. It would be disastrous should corporate
governance undermine value creation efforts, which in the instance of firms that have gone past
the survival and development phases of growth would take the form of corporate
entrepreneurship. Thus far our consideration of corporate governance has not considered the
impact on internal operations of the entrepreneurial firms. At this juncture, we need to consider
the implications of corporate governance on value creation in these firms
Conclusion

The importance of corporate governance cannot be more emphasized as it forms the

organizational climate for the internal activities of a company. If corporate governance is
confined to broad governance, and beyond the board level and one that does not counter-
demand innovation, research and development and corporate entrepreneurship strategies, it
would have limited operational impact on SMEs. Since corporate governance brings new
strategic outlook through external independent directors, it would enhance firm’s corporate
entrepreneurship and competitiveness which is much desired. It is not a threat to value creation
in entrepreneurial firms should the guidelines on corporate governance be applicable.

Third article

Corporate Governance and Value Creation: Evidence from Private

Equity

Introduction

Our paper is an attempt to bridge these two strands of literature concerning private equity, the
first of which analyses the operating performance of acquired companies, and the second
analyzes fund IRRs. We focus on the following questions: (1) Are the returns to large, mature
PE houses simply due to financial gearing over and above gearing in the comparable quoted
sector, or do these returns represent the value created in enterprises they engage with, over
and above the value created by the quoted sector peers? (2) What is the effect of PE ownership
on the operating performance of portfolio companies relative to that of quoted peers, and how
does this performance relate to the financial value created (if any) by these houses? (3) What
are the distinguishing characteristics of the governance and operational approach of these PE
houses relative to those of the PLC boards, and which of these characteristics are best
associated with value creation? In particular, we are interested in taking a step beyond Jensen’s
hypothesis by investigating whether large, mature PE houses create enterprise value by
engaging in “active” ownership or governance and operational engineering, in addition to
employing leverage .

summary

This paper reviews the literature on the linkages between corporate governance and
entrepreneurship and how corporate governance systems may be conducive or obstructive to
entrepreneurship and economic development. We employ cross-country data to illustrate how
corporate governance institutions (as measured by property rights and concentration of
corporate ownership) may influence the entry of new firms and the efficiency of capital
allocation. As a measure of how efficiently capital is (re)allocated in an economy, we utilize a
measure of the elasticity of the capital stock with respect to output. Our findings support the
view that weak protection of property rights and investors and high aggregate ownership
concentration are negative factors for resource allocation and new firm formation. Ownership
concentration and weak institutions reduce new firm formation.