CORPORATE GOVERNANCE AND FINANCE IN EAST ASIA

Transcription

1 i CORPORATE GOVERNANCE AND FINANCE IN EAST ASIA CORPORATE GOVERNANCE A Study of Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand AND FINANCE IN EAST ASIA VOLUME ONE A Consolidated Report A Study of Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand Juzhong Zhuang Senior Economist Volume OneRegional Economic Monitoring Unit David Edwards Assistant Chief Economist Project Economic Evaluation Division Juzhong Zhuang David Webb David Edwards Professor of Finance David Webb Director of Financial Markets Ma. Group Virginita Capulong London School of Economics Ma. Virginita A. Capulong Economics Analyst Project Economic Evaluation Division

2 ii 2000 All rights reserved. This publication was prepared under the s regional Technical Assistance 5802: A Study on Corporate Governance and Financing in Selected DMCs. The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank, or its Board of Directors or the governments they represent. does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequences for their use. ISBN: Published and printed by the P.O. Box 789, 0980 Manila, Philippines

3 iii CONTENTS List of Tables iv Foreword v Preface vi Abbreviations vii 1. Introduction 1 2. An Analytic Framework of Corporate Governance and Finance The Issue of Corporate Governance Ownership Structure Shareholder Control and Protection Creditor Monitoring, Disciplining and Protection The Market for Corporate Control Securities Market Regulations Market Competition Corporate Finance Two Models of Corporate Governance and Finance Corporate Governance and Finance in the Five Affected Countries Ownership Structure Shareholder Control and Protection Credit Monitoring, Disciplining and Protection The Market for Corporate Control Capital Markets and Regulations Corporate Finance Market Competition Recent Corporate Governance Reforms in the Five Affected Countries Industry Concentration Corporate Ownership Shareholder Participation and Protection Transparency and Disclosure Reforms in Bankruptcy Procedures 66

4 iv 5. Recommendations for Strengthening Corporate Governance Rationalizing Corporate Ownership Structure Strengthening Corporate Internal Control and Shareholder Protection Strengthening External Monitoring and Discipline Developing Capital Markets and Improving the Efficiency of Corporate Financing Reform Priorities in the Short and Medium Term 86 References 89 LIST OF TABLES Table 1: Ownership Concentration 22 Table 2: Ownership Composition in Table 3: Control of the Publicly Listed Companies in Table 4: Foreign Ownership of the Publicly Listed Companies 26 Table 5: Means of Enhancing Control in the Publicly Listed Companies 28 Table 6: Bank Lending, Corporate Bonds, and Equity Markets in Table 7: Debt-Equity Ratios of the Corporate Sectors, Table 8: Distribution of Debt in Table 9: Financing of the Non-Financial Publicly Listed Companies 52 Table 10: Return on Equity of the Non-financial Publicly Listed Companies, Table 11: Recent and Proposed Reforms in Corporate Governance 68

5 v FOREWORD Corporate governance has become a major policy concern in the wake of the Asian financial crisis. Weak governance structure, poor investment, and risky financing practices of the corporate sector in the affected countries contributed to their sharp economic recession in The weaknesses in corporate governance and finance undermined the capacity of these countries to withstand the combined shocks of depreciated currencies, massive capital outflows, increased interest rates, and large contraction in domestic demand. To help understand the corporate governance issues and their impact, as well as to identify needs for interventions in addressing policy and institutional weaknesses, the Economics and Development Resource Center of the (ADB) undertook a regional study on corporate governance and finance in selected developing member countries. The countries covered are Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand. This book presents the major findings of the study. The policy recommendations will support ADB s financial sector work in its developing member countries. Jungsoo Lee Chief Economist Economics and Development Resource Center

6 vi PREFACE C orporate Governance and Finance in East Asia presents the findings of a regional study of corporate governance and finance in selected developing member countries of the (ADB). The study attempts to identify the weaknesses in corporate governance and finance in countries most affected by the 1997 Asian financial crisis, and recommend policy and reform measures to address the weaknesses. The study covers Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand. The findings of the study are presented in two volumes. Volume One, A Consolidated Report, presents a framework for analyzing corporate governance and finance, summarizes the major findings of the five country studies, and provides key policy recommendations for strengthening corporate governance and improving the efficiency of corporate finance in ADB member countries. Volume Two, Country Studies, collects the five country reports. We would like to thank country experts Saud Husnan of Gadsab Mada University, Indonesia; Kwang S. Chung and Yen Kyun Wang of Chung-Ang University, Republic of Korea; Fazilah Abdul Samad of University of Malaya, Malaysia; Cesar G. Saldana of PSR Consulting, Inc., the Philippines; and Piman Limpaphayom of Asian University of Science and Technology, Thailand for their efforts and cooperation in conducting the country studies. Cesar G. Saldana also provided useful inputs to the preparation of the consolidated report. The volumes benefited extensively from constructive comments from ADB staff and officials of the ministries of finance, central banks, securities and exchange commissions, stock exchanges, and corporate restructuring agencies of the eight ADB member countries that participated in the study s finalization workshop in Manila, on November Our deep appreciation goes to Jungsoo Lee, Chief Economist and S. Ghon Rhee, former Resident Scholar, both of the ADB, for their strong support at various stage of the study; Manabu Fujimura, for his efforts in organizing the finalization workshop; Marcelia Garcia, Marinie Baguisa, Ma. Regina Sibal, and Rosanna Benavidez, for their administrative support and assistance; and Judith Banning and Lynette Mallery, for their editorial advice. The views and opinions expressed in this book are those of the authors and do not necessarily reflect ADB policies or positions. Use of the term country does not imply any judgment by the authors or the ADB as to the legal or other status of any territorial entity.

7 vii ABBREVIATIONS ADB AGM ASEAN CDRC CDRAC CEO CP DER DMC FSC GDP IASC IBRA IDR INDRA JSX KLSE KSE RM NPL OECD PSE PLC RETA SEC SET SIA SGM UK US USD Annual general meeting Association of South-East Asian Nations Corporate Debt Restructuring Committee Corporate Debt Restructuring Advisory Committee Chief executive officer Commercial paper Debt-to-equity ratio Developing member country Financial Supervisory Commission Gross domestic product International Accounting Standards Committee Indonesian Bank Restructuring Agency Indonesian rupiah Indonesia Debt Restructuring Agency Jakarta Stock Exchange Kuala Lumpur Stock Exchange Korean Stock Exchange Malaysian ringgit Non-performing loan Organization of Economic Co-operation and Development Philippine Stock Exchange Publicly listed company Regional technical assistance Securities and Exchange Commission Stock Exchange of Thailand Securities Industry Act Special general meeting United Kingdom United States US dollar Note: In this book, $ refers to US dollar.