The purpose of governance mechanisms in corporations is to:

Question

Quizplus · Accepted Answer

The purpose of governance mechanisms in corporations is to reduce the scope and frequency of the agency problems. These agency problems arise due to the separation of ownership and control in corporations. The governance mechanisms, such as independent directors, executive compensation, and shareholder activism, are put in place to align the interests of managers with the long-term interests of the shareholders and reduce agency costs. Centralizing resources to top management or limiting corporate growth may not necessarily address agency problems, satisfy SEC requirements, or monitor board performance.

The Purpose of Governance Mechanisms in Corporations Is To