Why is corporate governance important?-Will good corporate governance lead to better firm performance? Ownership Structure: Types - Dispersed Ownership System: o is characterized by strong securities markets, rigorous disclosure standards, and high market transparency, in which the market for corporate control constitutes the ultimate disciplinary mechanism o a modern corporation is characterised by a dispersed ownership structure o a ‘principle-agent’ problem o a ‘free rider’ problem o ‘no innocent shareholder’
IBUS20001: BUSINESS IN ASIA - Concentrated Ownership System: o Is characterised by controlling blockholders, weak securities markets, high private benefits of control, and low disclosure and market transparency standards, with only a modest role played by the market for corporate control, but with a possibly substitutionary monitoring role played by large banks o Firms are found to have more concentrated ownership than dispersed ownership o Reduce ‘principal-agent’ problem o Conflict of interest between controlling shareholders and minority shareholders o Protection of minority shareholders is the key Separation of Ownership and Control in East Asian Corporations - Examine ownership structure of nine East Asian countries - The largest ten families controlled more than half of the corporate assets in Indonesia (57%) and the Philippines (53%), followed by Thailand (46%), Hong Kong (32%), Korea (37%), Singapore (27%), Malaysia (25%), Taiwan (18%) and lastly Japan (2.4%) - Weak legal protections and low corporate transparencies Board of Directors: - Roles, duties, and responsibilities of board of directors o The board is responsible for determining the company’s aims and the strategies, plans, and policies to achieve those aims; monitoring progress in the achievement of those aims; and appointing a CEO with appropriate leadership qualities Types of directors: - Executive directors o A director who is a full-time employee of the listed company - None-executive directors o A director who maintains some form of personal or professional relationship with the firm - Independent non-executive directors o A director who has no relationships or circumstances which cold affect the director’s judgement Corporate Governance Theories in relation to Boards: - Agency theory - Stewardship theory - Stakeholder theory
IBUS20001: BUSINESS IN ASIA Agency theory: - A modern corporation is characterised by a dispersed ownership structure - Dispersed ownership structure – none of the shareholders has the power to control the managers, while managers will search for self-interest instead of maximising shareholders’ returns - People are individualistic and seek to maximise their own utilities -
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- Business, Asian Financial Crisis