Why does Corporate Governance Become So Important? An Attempt to Identify the Major Causes for Calls to Improve Corporate Governance

Abstract

This paper is an attempt to identify the major causes for calls to improve corporate governance whether at the firm level or at the country level. The last three decades has witnessed exponential increase in corporate governance awareness, corporate governance regulations and a drive for improved corporate governance. Based on the review of the relevant literature five reasons has been identified as the major causes for calls to improve corporate governance. These causes are a) increase in firm size and complexity, b) separation of ownership and management, c) exponential growth of capital markets, d) increase in fraud cases and financial crises and, e) increased awareness of corporate governance impact on firm financial performance.

Keywords: Corporate Governance, firm size, market growth, fraud, separation of ownership