Revisiting the Fundamental Theories of Corporate Governance: Do the Westernized Models Fit Emerging Economies?

Md Tariqul Islam
Department of Finance and Banking, Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh
DOI – http://doi.org/10.37502/IJSMR.2022.5902

Abstract

The study revisits the fundamental theories of corporate governance, such as agency theory, stakeholder theory, stewardship theory, and resource dependence theory. Each of the theories identifies the nature of the relationship between the owners and managers and proposes courses of action that could be implemented to foster organizational outcomes. Although there exist differences in views among the proponents of the governance philosophies, these theories are essentially developed for the countries in which diffused ownership pattern is the standard. Following the standardized theories, many developing countries have also adopted Westernised models. However, the outcome of incorporating the mechanisms is inconclusive. Therefore, this study suggests developing codes of governance that prioritizes the prevailing cultural, economic, and institutional dynamics of emerging economies.

Keywords: Agency Theory, Principal-Agent Problem, Principal-Principal Problem, Emerging Economy

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