The Effect of Corporate Goverance on Manufacturing Companies

The term "Corporate Governance" has been identified to mean different things to different people.

Magdi and Nadereh (2002) stress that corporate governance is about ensuring that the business is run well and investors receive a fair return. OECD (1999) provides a more encompassing definition of corporate governance. It defines corporate governance as the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company’s objectives are set and the means of attaining those objectives and monitoring performance. This definition is in line with the submissions of, Wolfensohn (1999) Uche (2004) and Akinsulire (2006).

Generally, the concept of corporate governance relate to the relationship between a company’s management board shareholders and other stakeholders. From the perspective above, good corporate governance entails efficient management of resources and provision of responsible leadership; it requires the provision of timely and quality information and the

enforcement of sanction for breaches in ethical standard, regulations and Code of conduct (Ogbeche, 2006: 2).

Corporate governance has become a popular discussion theme in developed and developing countries. The widely held view that corporate governance determines firm performance and protects the interests of shareholders has led to increasing global attention. However, the way in which corporate governance is organized differs between countries, depending on the economic, political and social contexts. For example, firms in developed countries have dispersed shareholders and operate within stable political and financial systems, well developed regulatory frameworks and effective corporate governance practices. However, firms that operate in developing countries such as Sri Lanka may be affected by political instability resulting in severe economic dislocation and sharp escalation in defense expenditure, which result in a widening fiscal deficit.