UPSC Prelims 2023 CSAT Paper II · Q22 of 77 Comprehension medium

Passage

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 enhances 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 ?

  1. (a) It is an important agenda of the countries around the world to ensure access to good external financing.
  2. (b) Good corporate governance improves the credibility of the firms. ✓ UPSC's answer
  3. (c) International capital markets ensure that the firms maintain good corporate governance.
  4. (d) Good corporate governance paves the way for robust supply chains.

Why the answer is (b)

• The passage states that effective corporate governance enhances access to external financing by firms.

• It further explains that investors place funds where standards of disclosure, timely and accurate financial reporting, and equal treatment are met.

• Meeting these high standards of transparency and accountability directly builds trust and reliability in the eyes of investors.

• Therefore, the logical inference is that good corporate governance improves the credibility of the firms, making them attractive to external capital.

• This aligns with option (b), as credibility is the underlying factor that facilitates the access to financing mentioned in the text.

Why the other options are wrong

(a) It is an important agenda of the countries around the world to ensure access to good…
The passage states that corporate governance is on the agenda to enhance access to financing, not that ensuring access to financing itself is the primary global agenda.
(c) International capital markets ensure that the firms maintain good corporate governance.
The passage indicates that the growth of international capital markets is a reason governance is on the agenda, not that the markets themselves enforce or ensure good governance.
(d) Good corporate governance paves the way for robust supply chains.
The passage discusses investment, growth, and employment, but makes no mention of supply chains.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2023, held on 28 May 2023. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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