Importance of corporate governance

Corporate governance is important for the following reasons:

1. It shapes the growth and future of capital markets of the economy.

2. It helps in raising adequate funds from capital markets.

3. It links the company's management system with its financial reporting system.

4. It enables management to take innovative decisions for effective functioning of an enterprise within the legal framework of accountability.

5. It supports investors by making corporate accounting practices transparent. Corporate enterprises have to disclose financial reporting structures.

6. It provides adequate and timely disclosure, reporting requirements, code of conduct etc. Companies present material price sensitive information to outsiders and ensure that till the time this information is made public, insiders abstain from dealing in corporate securities. It, thus, avoids insider trading.

7. It improves efficiency and effectiveness of an enterprise and adds to material wealth of the economy.

8. It improves international image of the corporate sector and enables home companies to raise global capital.

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