The Role of Corporate Governance in Emerging Economies for Transition Countries in Central and Eastern Europe

Abstract

Corporate governance has come to the forefront of academic research due to the vital role it plays in the overall health of economic systems. The wave of U.S. corporate fraud in the 1990s was attributed to deficiencies in corporate governance. The recent 2008-2009 global financial crisis, triggered by the unprecedented failure of Lehman Brothers and the subprime mortgage problems, renewed interest in the role corporate governance plays in the financial sector. The development of a strong corporate governance framework is important to protect stakeholders, maintain investor confidence in the transition countries and attract foreign direct investment.

Corporate governance concerns the design of decision-making structures relating to a firm's choice of new investment projects and the operation of its existing ones. The appropriate focus here is on the factors that influence the decisions at the top of a corporation. Internal controls beyond those applied to the directors and top managers, important as they are for a well-functioning corporation, do not involve issues of corporate governance. Rather, they are part of the tools of good administration needed by any organization, whether a government ministry, a for-profit corporation, or a nonprofit organization. Such internal controls simply assure that the organization as a whole behaves in accordance with the decisions and goals of top management.

The purpose of this study is to contribute for central and eastern Europe countries to understand the differences between views regarding the content of the concept on corporate governance and its management role. From the other side we would like to explain in shortly the sources of corporate governance, stages of market transformation, corporate governance indicators, responsible of the managers to lead the corporate governance and the types of the relationships between governing and management functions in companies in Central European transitional economies.

The paper compares the different levels of corporate governance established among the transition countries.

Keywords – corporate governance, transition countries, emerging economies, etc.