CFA Level I · CFA Level I Exam · Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
Which of the following is most likely a benefit of effective corporate governance for a company?
Effective governance most likely lowers the cost of capital through greater investor confidence. Stronger oversight, transparency and accountability reduce agency and information risk, so investors and lenders require lower returns. It cannot remove all conflicts or guarantee growth.
- AElimination of all conflicts among stakeholder groups
- BGuaranteed higher revenue growth than competitors
- CLower cost of capital through greater investor confidenceCorrect
Explanation
Good governance reduces agency costs and improves transparency and accountability, so investors and lenders demand lower returns for risk. It cannot eliminate all conflicts or guarantee growth.
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