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Corporate governance refers to the system of rules, practices, structures, and processes through which companies are directed and controlled. It ensures accountability, transparency, fairness, and responsibility in the management of organizations. In the banking and financial sector, corporate governance assumes greater significance because financial institutions deal with public deposits, investments, and systemic financial stability. Sound corporate governance helps in minimizing risks, preventing fraud, protecting stakeholders' interests, and maintaining confidence in the financial system. Various theories of corporate governance explain the relationship between the management, shareholders, and other stakeholders, and provide different perspectives on how organizations should be governed. The Agency Theory is one of the earliest and most influential theories of corporate governance. It was developed by Michael Jensen and William Meckling in 1976. According to this theory, there is a separation between ownership and management in modern corporations. Shareholders are the owners or principals, while directors and managers act as agents on their behalf. Since managers may pursue their personal interests instead of maximizing shareholders' wealth, conflicts of interest arise, known as agency problems. Agency Theory emphasizes monitoring and controlling the actions of managers through mechanisms such as independent directors, audit committees, executive compensation linked to performance, disclosure requirements, and external audits. The board of directors is expected to supervise management effectively and ensure that managerial decisions ___ __________ _________ __________ _____ ______.
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