University of Vaasa - Vaasan yliopisto

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failures by corporate boards to provide oversight, control and direction to their
organisations. The ripple effect of these failures has had deep consequences on the
broader global economy, more so for least developed countries that have seen a
reversal in much of the progress that was made prior to it and will be very difficult to
recover.
According to Helbling & Sullivan (2002), corporate governance is one key element
in improving economic efficiency and growth as well as enhancing investor
confidence. Helbling & Sullivan further argue the presence of an effective corporate
governance system, within an individual company and across an economy as a whole,
helps to provide a degree of confidence that is necessary for the proper functioning
of a market economy. The resultant benefit the whole economy gets from that is that
the cost of capital becomes lower and firms are encouraged to use resources more
efficiently, thereby underpinning growth. In essence, according to agency theory,
corporate governance involves a set of relationships between a company’s
management, its board, its shareholders and other stakeholders, making it a
prerequisite for the integrity and credibility of market institutions. According to the
OECD (2005) guidelines, by building confidence and trust, good governance allows
the corporations to have access to cheaper external finance and to make reliable
commitments to creditors, employees and shareholders. It is this contract that
underpins economic growth in a market economy and public faith in that system.
Therefore, this study will employ two theories as stated in the introduction. Through
the agency theory, the relationship types between company principals and agents will
be explored in order to study how these can be taken advantage of to foster broader
economic development. Institutional theory will be applied largely because practices
vary across institutional environments and as a learning process, developing and
implementing working good corporate governance principles requires key
institutional reform. Thus, this theory will be key to understanding how different
institutional frameworks can be strengthened to bring about a sense of accountability,
transparency and responsibility in all sectors of the economy.