Market-Based Corporate Governance System

DEFINITION of 'Market-Based Corporate Governance System'

A system relying on the investors of a firm to exert control over how the corporation is to be managed. A market-based corporate governance system defines the responsibilities of the different participants in the company, including shareholders, the board of directors, management, employees, suppliers and customers.

BREAKING DOWN 'Market-Based Corporate Governance System'

Corporate governance systems have developed differently throughout the world. The market-based corporate governance system is based on Anglo-American law. Since the markets are the primary source of capital, investors are given the most power in determining corporate policies. Therefore, the system relies on the capital markets to exert control over the corporation's management.