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Governing the Modern CorporationCapital Markets, Corporate Control, and Economic Performance$
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Roy C. Smith and Ingo Walter

Print publication date: 2006

Print ISBN-13: 9780195171679

Published to Oxford Scholarship Online: September 2006

DOI: 10.1093/0195171675.001.0001

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Conflicts of Interest

Conflicts of Interest

Chapter:
(p.248) 10 Conflicts of Interest
Source:
Governing the Modern Corporation
Author(s):

Roy C. Smith (Contributor Webpage)

Ingo Walter (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0195171675.003.0010

Potential conflicts of interest are a fact of life among the financial firms that help direct the flow of capital in the modern market-oriented economy. There are essentially two types of conflicts of interest that face intermediary firms: Type 1 conflicts arise between a firm’s own economic interests and the interests of its clients, usually reflected in the misappropriation of economic gains or mispriced transfers of risk; Type 2 conflicts develop between clients, placing the firm in a position of favoring one at the expense of another-bankers who systematically favor corporate clients over investing clients would be an example of this type of conflict. Both types of conflicts can arise either from interprofessional transactions carried out in wholesale financial markets, or in activities involving retail clients.

Keywords:   conflicts of interest, financial intermediaries, financial markets, corporate governance

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