Good corporate governance structures encourage companies to provide accountability and control. A fundamental reason why corporate governance has moved onto the economic and political agenda worldwide has been the rapid growth in international capital markets. Effective corporate governance enhance access to external financing by firms, leading to greater investment, higher growth and employment. Investors look to place their funds where the standards of disclosure, of timely and accurate financial reporting, and of equal treatment to all stakeholders are met. Which of the following statements best reflects the logical inference from the passage given above?
- AIt is an important agenda of the countries around the world to ensure access to good external financing
- BGood corporate governance improves the credibility of the firms
- CInternational capital markets ensure that the firms maintain good corporate governanceCorrect
- DGood corporate governance paves the way for robust supply chains.
Explanation
The passage establishes a cause-and-effect relationship between international capital markets and corporate governance. It states that the rapid growth in international capital markets is a fundamental reason why corporate governance has become a global priority. This is because investors in these markets specifically look for firms that meet high standards of disclosure and reporting. Therefore, it can be logically inferred that these markets act as a mechanism that compels or ensures firms maintain good corporate governance to attract investment. While option B is true in a general sense, option C more accurately reflects the specific link between international markets and the shift in the corporate governance agenda described in the text.
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