CORPORATEG OVERNANCDEE ALSW ITHt he ways in which suppliers of finance to
corporations assure themselves of getting a return on their investment. How
do the suppliers of finance get managers to return some of the profits to them?
How do they make sure that managers do not steal the capital they supply or
invest it in bad projects? How do suppliers of finance control managers?
At first glance, it is not entirely obvious why the suppliers of capital get
anything back. After all, they part with their money, and have little to contribute
to the enterprise afterward. The professional managers or entrepreneurs
who run the firms might as well abscond with the money. Although they
sometimes do, usually they do not. Most advanced market economies have
solved the problem of corporate governance at least reasonably well, in that
they have assured the flows of enormous amounts of capital to firms, and
actual repatriation of profits to the providers of finance. But this does not
imply that they have solved the corporate governance problem perfectly, or
that the corporate governance mechanisms cannot be improved.