Emerging Markets Corporate Governance Failures. It has been claimed that failures in corporate governance have hampered the growth and profitability of some prominent firms located in emerging markets. Identify the main drivers of this phenomenon and proven examples to support your position.
Emerging markets are significant to the global economy due to the high growth of technology, innovations, and economics. Thus, emerging markets offer attractive opportunities and risks for potential investors. Studies have indicated that corporate governance of an organization has a significant impact on its performance in an emerging market (Boubaker & Nguyen, 2014). This paper aims at identifying the main drivers if corporate failures that hamper the profitability and growth of organizations in emerging markets.
Haque and Arun (2016) noted that the majority of emerging market companies fail due to a lack of transparency in corporate governance. Lack of transparency creates an opportunity for corruption and misstatement of financial statements to make the company attractive to stakeholders in the place it operates. For instance, Wells Fargo's Company lost the trust of customers and the public after the scandal of creating fake accounts in 2016 (Shen, 2019).
Insider trading is another significant driver to the failure of organizations in emerging markets. Some of the managers illegally trade on the stock exchange for their benefits based on confidential information. For instance, Shen (2019) indicated that top executives of Equifax (a credit rating company) were involved in a scandal of using sensitive data for personal gains. The executives sold $1.8 shares before information on data breach was released publicly.
Cronyism and Poor Auditing Practices
The International Accounting Standards Board (IASB) requires that all financial statements be audited by a competent and independent auditing firm (Boubaker & Nguyen, 2014). However, some organizations fail to comply with the regulations and practice cronyism and unlawful auditing practices.
Boubaker, S., & Nguyen, D. K. (2014). Corporate governance and corporate social responsibility: Emerging markets focus. World Scientific.
Haque, F., & Arun, T. (2016). Corporate governance and financial performance: an emerging economy perspective.
Shen, L. (2019). http://fortune.com. Retrieved from http://fortune.com/2017/12/31/biggest-corporate-scandals-misconduct-2017-pr/
by EssayRoyal, Dec. 7, 2019, 7:38 p.m.