Role of Corporate Governance in Financial Markets

Accounting
1

Part 2: Role of Corporate Governance in the Financial Markets
Corporate governance can be regarded as a major role in promoting the development of
robust and efficient financial systems. It is because it enables in developing an efficient legal
framework within financial institutions such as banks by specifying the rules and regulations that
need to be followed by its directors, shareholders and other stakeholders. It also specifies the
disclosure requirements that need to be followed by businesses by promoting the enforcement of
legal laws and procedures (Steinberg, 2018). It leads to strengthening of the market disciplines of
banks by promoting the faith of investors in the functioning of banking operations and thus
ensuring that they continually invest within the banks so that they are able to meet their capital
needs. The enforcement of the legal and regulatory structures is considered to be very essential
for promoting transparency and accountability within the capital market. The presence of
adequate legal structures and processes ensures that business managers are acting in their best
interests for protecting the rights of the shareholders and maximizing the value created for the
same. As such, it helps in reducing the problem of agency conflict that can negatively impact the
growth and development of the financial markets (Ferrarini, 2017.)
Part 3: Explanation of Three Factors Indicating Strong Corporate Governance of a
Company
Clear Organizational Strategy
The presence of good corporate governance within an organization begins with
development of a clear strategy that defines the plan of promoting its long-term growth. The
organizational strategy helps in guiding the business managers to develop strategic plans to
achieve the determined goals and objectives. It helps in developing strategic vision and mission
for promoting business growth and development and thus facilitating in meeting the needs of its
different stakeholder groups (Brink, 2011).
Strong Risk Management system
The presence of an effective corporate governance management system within an
organization also requires developing a sound risk management system. This implies
development of efficient policies and procedures to identify and mitigate any type of
2