Gul tsui the governance of east asian corporations; post asian financial crisis (2004)

The Governance of East Asian Corporations Post Asian Financial Crisis Ferdinand A Gul and Judy S.L Tsui The Governance of East Asian Corporations This page intentionally left blank The Governance of East Asian Corporations Post Asian Financial Crisis Ferdinand A Gul PhD, MCom, ACA (Aust), FHKSA, CPA Judy S L Tsui PhD, MSc, FCPA, FHKSA, CA Selection and editorial matter © Ferdinand A Gul and Judy S L Tsui Individual chapters © Contributors 2004 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988 First published 2004 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N Y 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St Martin’s Press, LLC and of Palgrave Macmillan Ltd Macmillan® is a registered trademark in the United States, United Kingdom and other countries Palgrave is a registered trademark in the European Union and other countries ISBN 1–4039–4410–5 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Governance of East Asian corporations: post Asian financial crisis/ edited by Ferdinand A Gul, Judy S L Tsui p cm Includes bibliographical references and index ISBN 1–4039–4410–5 (cloth) Corporate governance–East Asia Corporate governance–Asia, Southeastern I Gul, Ferdinand A II Tsui, Judy S L., 1955– HD2741.G6895 2004 338.6v095–dc22 2004047314 10 13 12 11 10 09 08 07 06 05 04 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne Dedicated to the memory of my late father, Haji Mohamed Gul Ferdinand A Gul Dedicated to my dad, my husband and my three children for all their love and support Judy S L Tsui This page intentionally left blank Contents xi List of Tables and Figures xii Preface xvii Acknowledgment xviii About the Contributors Introduction and Overview Ferdinand A Gul and Judy S L Tsui 1.1 Relationship versus market-based systems 1.2 What is corporate governance 1.3 Legal and regulatory environments 1.4 Legal systems and investor rights and protection 1.5 Board structure 1.6 Ownership structure 1.7 Corporate governance guidelines – Cadbury and others 1.8 OECD principles 1.9 Country overviews 1.10 Overview 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Shareholding Structures, Related Party Transactions and Corporate Governance in China Wei Guo Zhang Introduction Background Main characteristics of joint stock company formation for IPO Main characteristics of the shareholding structure of listed companies in the PRC Corporate governance problems arising from the above characteristics Issues highlighted by analyzing financial information Adopted and proposed measures vii 10 11 15 24 27 28 32 33 37 41 44 viii Contents 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 5.1 5.2 5.3 5.4 6.1 6.2 6.3 6.4 6.5 Governance in Family-Owned Hong Kong Corporations Judy S L Tsui and Vanessa Stott Introduction Recent corporate governance developments Challenges for corporate governance reform in Hong Kong Conclusion Political Patronage, Cross-Holdings and Corporate Governance in Indonesia Etty R Wulandari and Asheq R Rahman Introduction Background Business regulatory framework Corporate governance Disclosure rules and regulations Corporate governance of the Top 100 listed companies Discussion Conclusions Corporate Governance in Japan: Role of Banks, Keiretsus and Japanese Traditions Huong N Higgins Introduction The Legal framework and traditional characteristics of Japan’s corporate governance environment Economic pressures and corporate governance reforms Conclusion Paradoxes of Governance: Ownership and Control of Corporate Malaysia Edmund T Gomez Introduction Defining corporate governance The state of capital: corporate development 1970–2000 Ownership and control: Top 100 firms Conclusion: paradoxes of governance 54 60 65 67 71 71 73 76 80 86 88 92 96 97 104 111 117 118 120 127 132 Contents ix 7.1 7.2 7.3 7.4 7.5 8.1 8.2 8.3 8.4 8.5 9.1 9.2 9.3 9.4 9.5 9.6 Corporate Governance in the Philippines: Legal and Institutional Aspects and Impact on the 1997 Financial Crisis and its Aftermath Stephen G Lynn Introduction Governance mechanisms available Legal and regulatory influence Country-specific obstacles and difficulties Overall assessment 138 139 142 150 153 Corporate Governance in Singapore: Past, Present and Future Yuen Teen Mak Introduction 155 Corporate governance in Singapore: pre-crisis 156 Recent corporate governance developments in Singapore 164 Corporate governance practices in Singapore 168 Summary and conclusions 170 Chaebols and Corporate Governance in South Korea Francis C Kim, Chung-Ki Min and Christopher Maden Introduction Corporate governance in Korea: pre-crisis Financial crisis in Korea Corporate governance developments in Korea Evaluation of Recent Developments Conclusion 10 Relationship-Based Business Enterprises and Recent Corporate Governance Reforms in Taiwan Ben-Hsien Bao, Chen-En Ko and Yin-Hua Yeh 10.1 Introduction 10.2 Legal framework 10.3 Accounting and auditing regulations 10.4 Corporate governance mechanisms 10.5 Obstacles and difficulties in improving corporate governance mechanisms 10.6 Recent corporate governance reforms in Taiwan 10.7 Conclusion 177 179 186 187 192 195 199 199 201 203 204 208 212 Deunden Nikomborirak 235 German banks exercise corporate control through custodianship of shares deposited therewith References Alba, P., S Claessens and S Djankov (1998) Thailand’s corporate financing and governance structures: Impact on firm’s competitiveness Paper presented at Conference on Thailand’s Dynamic Economic Recovery and Competitiveness, 20–21 May, 1998, Bangkok, Thailand Institute for Management Development (IMD) (2000) IMD: World Competitiveness Report National Centre for Policy Analysis La Porta, R., F Lopez-De-Silanes, A Shleifer and R W Vishny (1998) Law and finance Journal of Political Economy 106(6): 1113–1155 La Porta, R., F Lopez-De-Silanes, A Shleifer and R W Vishny (1997) Legal determinants of external finance The Journal of Finance 52: 1131–1147 Nikomborirak, D (2000) Building better governance: A challenge facing the Thai economy The Thailand Research Institute (TDRI) report submitted to the United Nations Development Programme (UNDP) Rahman, M Z (1998) The role of accounting disclosure in the East Asian financial crisis: Lessons learned? Paper prepared for the UNCTAD The Stock Exchange of Thailand (SET) (1999) Enhancing good corporate governance of Thai listed companies SEC Research paper, http://www.sec.or.th Index Aaker, D 99 Abegglen, J C 113 AFC see Asian Financial Crisis Agarwal, R 66 Aharoni, Y 160 Aharony, J 43 Alba, P 235 Alexander, A J 104 Allen, F 113 American Chamber of Commerce in Japan (ACCJ) 105, 113 American Institute of Certified Public Accountants (AICPA) Statements on Auditing Standards 82, 85 American International Assurance, M&A activities 217 Anderson, C W 98–9, 103, 111 Ang, S H 160 Anwar 125, 128, 131–2 Aoki, M 114 Arayama, Y 105 Asian Corporate Governance Association (ACGA) 67 Asian Development Bank (ADB) 83, 185 survey of Philippines borrowing 141 Asian Financial Crisis (AFC) 1997 xii, xiv, 1–2, 19, 20, 24, 72, 85, 104–5, 117, 119, 184, 209 contagion 164 Japan 104 Korea 178, 187–8 Malaysia 19, 126 in the Philippines 138, 149 Singapore 156, 164 Taiwan 22, 199 Thailand 216 Asian Wall Street Journal 117 Australia 156 Babcock, B A 104–5 Backman, M 199 Badawi, A 20 Bae, K 180 Bangkok Bank of Commerce xii Bank Bumiputra/BMF scandal 134 Bank Indonesia 77 Bank of Asia 227 Bank of Thailand 216, 220 Bank of Thailand Act 219 Bank Rakyat scandal 134 banks 56, 81, 118, 183, 200 audit committees 77–8, 88 chaebols and 22 governance role provided by 98–9 relationship-based systems Bao, B H 199 Bapepam (Indonesian Capital Market ExecutiveAgency) 74, 77–8, 81–5 see also Malaysia Barisan Nasional (Malaysian multi-party coalition) 122–3, 124 see also Malaysia Bayoumi, T 105 Blair, M M 118 Board committees 227 board of commissioners (BOCs) 76–7, 80, 86–8, 90–1 board of directors (BODs) 3, 23, 46, 76–7, 90–1, 97, 225–7 accountability 14 independence 14, 19 membership requirement to disclose material interests 13 responsibilities of 12 structures 6–7, 18 board structure of companies 6–10 comparing common law and civil law countries 236 Index 237 dual unitary bonds 23, 28, 90, 187, 218, 230–1 bonuses 141–2, 204 booms 139, 194 borrowing 90, 98 cross-debt guarantees 178 excessive, short-term hedge funds 186 intra-group 186 ratio to assets 194 short-term 42, 179 British military bases in Singapore 155 Bumiputera people see Malaysia Burkart, M 204 Burt, R S 129 Cadbury Report, United Kingdom 6, 10 Campbell, T L 103, 111 Canada, Dey Report in 10–11 Capital Market Executive Agency 74 Carlile, L E 111 CEOs see Chief Executive Officers Cha, L 45–6, 48–50 Chaebols in Korea xii, 2, 24 system of cross-holding 180 Chen, C 43 Cheong, S 10 Chief Executive Officers (CEOs) appointment and removal in Japan 109 average tenure in Philippines 142 foreign, in South Korea 195 in Hong Kong companies 63–7 China see PRC China Securities Regulatory Commission (CSRC) 41, 46–7 Chinese in Malaysia 19, 121–4, 126–7, 129 equity ownership 120 Chng, C K 169 Choi, Y S 184 Chung, K S 180–1, 186, 191 civil law systems 4, 54 dual board structure lower levels of investor and creditor rights 5–6 Claessens, S 10, 54, 66, 204, 213 Collyns, C 105 Commercial Codes Dutch 73 Japanese 96–7, 105, 107, 109, 110 Korean 180, 182, 186 common law system 3, 4–5, 54, 67, 97, 201 countries comparing corporate governance 5–7 fiduciary duties 58 principles 55, 61 rule of law score Company Law Hong Kong 55 Indonesia 73, 78, 81, 83 People’s Republic of China 32, 38–9, 43, 45–7, 50 Taiwan 200, 206–7, 212 United Kingdom 55 conglomerates 89, 128 family-owned 21, 140 politically-linked 117 rise of 124–7 see also chaebols consensus economics forecasts, comparison of different countries on 16 Cooke, T E 100 corporate governance 2–3 best practice in 10 definition 2–3, 118–20 guidelines 10–11 Hong Kong 17, 60–5 Indonesia 17–18, 76–80, 88 Japan 18–19, 39, 97–104 key elements of Korea 181–2, 187–92 Malaysia 19–20, 118–20 People’s Republic of China 37–41, 44–52 Philippines 20–1, 138–53 reforms and changes 10 Singapore 155–74 standards of 4, 21 Taiwan 22–3, 203–12 Thailand 23, 216, 231–3 voluntary code of conduct for 238 Index Corporate Governance Best-Practice Principles for TSE/GTSM Listed Companies 211 Corporate Transparency Index (CTI) by the Business Times 172 Craig, V V 112 cross-holdings 71–96, 99–101, 103, 105, 106–7, 128, 178, 180, 190, 204, 209 Daewoo 179, 190 Daily, C M 66 Daim, Finance Minister of Malaysia 123, 125–6, 128, 131–2, 134 debt 81, 231 crises 117–18, 132 cross-guarantees of 191 SOEs struggling to restructure 80 debt-equity ratios 22, 90, 178, 190, 193, 218 Development Bank of Singapore 155 Dey Report in Canada 10–11 directors 200 appointment of 55, 79, 99, 109, 141, 225 career incentives 102 duties of 55, 58, 61, 76, 144, 157, 211 executive 7, 64, 101, 121, 169, 204, 225, 227 functions of 20, 211 independent directors 23, 48, 56–9, 65, 67, 169, 208, 225–6 INEDs (independent non-executive directors) 58–9, 65, 67 interlocking directorships 90, 108, 118–19, 122, 128–30, 144–5 non-executive 3, 14, 58–9, 65, 67, 168–9, 182, 204 orientation and continued education for 210–11 outside 101, 108, 181, 194, 195, 207, 227 remuneration of 60, 118, 144, 228 training programs for 142 see also board of directors disclosure 12, 13, 23, 59–60, 65, 75, 89, 147, 162, 168, 201, 203 international standards of 21, 164, 209 legal foundation of 81–2 see also information disclosure Doe, J 67 employee share option schemes (ESOS) 169 Enron 211 entrepôt trade 155, 161 European civil law Fair Trade Commission 186 Fama, E F 175 family ownership 10, 17, 24, 54–70, 89, 90, 140, 141, 149, 151, 179–80, 203 Field, G 98, 104, 112 financial statements 77, 110, 147, 158 annual 83, 232 audited 81, 152, 188, 202, 203 combined 185–6, 191, 194 commercial banks 224 concerns relating to credibility of 85 semi-annual 83, 203 foreign investors 2, 45, 78–9, 139, 149–50, 155 Gale, D 113 GATT see General Agreement on Tariffs and Trade GCCG see German Code of Corporate Governance General Agreement on Tariffs and Trade (GATT) 100 Generally Accepted Accounting Principles (GAAP) xiv, 59, 185, 202, 224 German Code of Corporate Governance Germany 182 code law tradition 97 essential tasks of supervisory board two-tiered board system 89, 200 Index 239 Gilson, R J 99–100 Goldschmidt, C 71 Gomez, E T xv, 128, 135 Gompers, P 181 Goodwin, J 163 Gre Tai Securities Markets (GTSM) in Taiwan 199, 204, 208–9 Greenbury Report in the U.K 11 Growth Enterprise Market (GEM) in Hong Kong, F A 57–8 Guo, Z W xv Hampel Committee in the U.K 11 Hart, O 71 Hassan, A E 136 Hattori, I 101–2 Heavy Industries Corporation of Malaysia (HICOM) see Malaysia Higgins, H N 96 Hirschmann, A O 66 HKEx see Hong Kong Exchanges and Clearing Co Ltd Holderness, C 204 Hong Kong accounting standards and disclosure 59 Banking Ordinance (BO) 56 Companies (Amendment) Bill, proposed 60 Companies Ordinance (CO) 55 challenges for reform in 65–7 recent developments 60–5 Corporate Governance Watch survey 68 corporations, governance in family-owned 54 Futures Exchange of Hong Kong Ltd 57 Growth Enterprise Market (GEM) 57–8 legal and regulatory environments 3, 55 Monetary Authority 59 ownership 54 Protection of Investors Ordinance 56 regulatory framework 17, 55, 57 Securities (Disclosure of Interests) Ordinance 56 Securities (Insider Dealing) Ordinance 56 Securities and Futures Commission (SFC) 56, 59 Securities and Futures Ordinance (SFO) 17, 55–6 Special Administrative Region (SAR) 54 Standing Committee on Company Law Reform (SCCLR) 17, 55, 58, 60–1 Statements of Standard Accounting Practice (SSAPs) 59 Stock Exchange of Hong Kong Ltd (SEHK) 57 Hong Kong Exchanges and Clearing Co Ltd (HKEx) 56 Growth Enterprise Market (GEM) 57–8 proposals for listing rules amendments by 64 Rules Governing the Listing of Securities issued by 59 Hong Kong Institute of Directors (HKIoD) 60 Hong Kong Monetary Authority (HKMA) 56 Hong Kong Securities Clearing Company Ltd (HKSCC) 57 Hong Kong Society of Accountants (HKSA) 59 Horiuchi, A 101 Husnan, S 72, 86 Hyundai 179, 190 Ibrahim, A 124 independent non-executive directors (INEDs) see directors Indonesia 7, 74 Accounting Principles 82 Bank Indonesia 77 Bankruptcy Law 73–4, 93 Bapepam (Badan Pengawas Pasar Modal) 74, 77–8, 82–5 Board of Directors and board of commissioners 76–7, 90–1 accounting disclosure rules 83–4, 91–2 audit committee 77–8 240 Index auditing standards and practices 84–6 socioeconomic issues 88–9 two-tier board system vs single board system 89–90 business regulatory framework 73–6 Capital Market Law 78, 83 Capital Market Structure 75 Capital Market Supervisory Agency see Bapepam civil law system Code for Good Corporate Governance (CGE) 73 Code of Professional Ethics of Indonesian Accountants 82 Company Law 73, 81, 83 Composite Stock Price Index (CSPI) 75 corporate governance 76–80 survey by PricewaterhouseCoopers 83 of top 100 listed companies 86–92 development of accounting standards in 82 Directorate General of Financial Institutions of MoF 85 disclosure rules and regulations 81–6 family controlled firms 24 Jakarta Stock Exchange (JSX) 75, 84 National Committee for Corporate Governance (NCCG) 72–3, 77 ownership structures 86–8 political patronage, cross-holdings and corporate governance in 71 securities market regulations 74–5 share ownership 78 Statements of Financial Accounting Standards or Pernyataan Standar Akuntansi Keuangan (PSAK) 82 state-owned enterprises (SOEs) 24, 73, 79–80, 91 Supervisory Board for Finance and Development (Badan Pengawas Keuangan dan Pembangunan – BPKP) 85 Indonesia Bank Restructuring Agency (IBRA) 79 Indonesian Institute of Accountants (IAI) 81, 84–5 Initial Public Offering (IPO) 32, 35, 37, 42, 44–6, 79, 200, 209 insider trading 13, 56, 142, 146, 148, 190, 201, 222–3 Institute for Management Development (IMD) World Competitiveness Report 222 institutional investors foreign 167, 204, 206 PricewaterhouseCoopers (PWC) survey (2000) 156 quality 49–50 role of 228–31 underdeveloped 35–7 International Accounting Standards (IAS) 18, 59, 151, 158, 185 International Accounting Standards Board (IASB) 82 International Accounting Standards Committee (IASC) 158 International Federation of Accountants (IFAC) Code of Ethics for Professional Accountants 159 International Monetary Fund (IMF) 1, 22, 178, 187 International Organization of Securities Commissions (IOSCO) 152 International Standards on Auditing (ISAs) 64 investors protection to 4–6, 19, 56, 61, 65, 83, 97, 217 rights of 4–6, 120 see also foreign investors; institutional investors IPOs see Initial Public Offerings Jackson, K D Jacobson, R 99 Jakarta Stock Exchange (JSX) Jang, H S 195 75, 84 Index 241 Japan “Amakudari”, or “descent from heaven”, practice of 101 Asian financial crisis 104 banks, governance role of 98–9 board of directors independence 108 insider dominated 101 structure 101, 109 Commercial Code 96–7, 110–11 Company Code 19 corporate auditors 109–10 corporate governance economic pressures and reforms 104–10 environment, legal framework and traditional characteristics of 97–104 practices, regulatory framework and 18–19 reforms 105 and role of banks, keiretsus and Japanese traditions 96 traditional characteristics of 98 Corporate Income Tax Law 97 corporate management, weak external monitoring of 102–4 cross-holdings 103, 106 mutual, practice of (keiretsu) 18, 98 cultural tradition 103 economic crisis 104–5 Federation of Economic Organizations (Keidanren) 105 Financial Services Agency 106 Foreign Exchange and Foreign Trade Control Law 103 “gyosei shido”, or administrative guidance 101 industrial policies 98 keiretsu see cross-holding legal system, civil law system Management Buy-Out (MBO) 106 Mergers and Acquisitions (M&A) activity 103, 105–6 Ministry of Finance (MOF) 97 Ministry of International Trade and Industry (MITI) 98 Ministry of Justice 97 Ministry of Postal Savings 98 Nippon Kaidanren 110 Securities and Exchange Law 97–8 shareholders litigation 107–8 weak position of 103 stock options 107 US Section 301 of Sarbanes–Oxley Act of 2002 zaibatsu 18 Japan Corporate Governance Forum (JCGF) 107, 112 Japan External Trade Organization (JETRO) 106 Jensen, M C 159 Jiang, Q 42, 45 Joh, S W 178 Johnson, L 100 Johnson, S xii, xvi, Jomo, K S 128, 135 JSX see Jakarta Stock Exchange Kamiyama, T 106 Kaplan, S N 114 Kato, T 102 Katz, R 104 Keidanren see Japan keiretsu cross-holdings in Japan 2, 18, 24, 98–101 Kester, W C 100 Kigyo Group keiretsu 99 Kim, F C 177 Kim, J K 184, 194 Kindelberger, C P xvi KLSE see Kuala Lumpur Stock Exchange Ko, C E 199, 205, 207 Korea Accounting Institute 185 Act on Establishment of Financial Supervisory Organizations 188 Act to Expedite the Going Public of Corporations of 1972 183 Act on External Audit of Stock Companies and Listing Rules 182 Asian Financial Crisis (AFC) of 1997 178, 187–8 auditing standards 186 242 Index Korea – continued banking system 188 Bankruptcy Act for liquidation 184 Capital Market Development Act of 1968 183 chaebols 21–2, 25, 179–81 corporate governance in 177–97 policies against 189–90 civil law system Commercial Code (CC) 182 Committee on Corporate Governance (CCG) 191 Company Reorganization Act and Composition Act 184 corporate governance 181–2, 190–2 in chaebols 177–97 developments in 187–92 pre-crisis 179–86 corporate sector 179–81, 189–90, 196 debt leverage 194 economic indicators 193 evaluation of recent developments 192–5 family-owned conglomerates see chaebol Federation of Korean Industries (FKI) 191 financial crisis in 186–7 financial markets 187 financial sector 179, 188 Financial Supervisory Commission (FSC) 188 Financial Supervisory Service (FSS) 188 Five-Year Economic Development Plans 177–8, 195 heavy materials and chemicals industries (HCI) 178 Interest Payment Coverage Ratio (IPCR) of firms 194 International Monetary Fund (IMF) 22, 187 Labor Standards Law 184 model of economic development, essential features 177 Monopoly Regulation and Fair Trade Act (Fair Trade Act) 183 regulatory framework 182–6 and corporate governance practices 21 Securities and Exchange Act (SEA) 182, 191 Securities and Futures Commission (SFC) 188 takeover and listing codes 191 Korean Securities Dealers Automated Quotations (KOSDAQ) 183 Korean Stock Exchange (KSE) 183 Korean Stock Price Index (KOSPI) 187 Korean War 177 Kuala Lumpur Stock Exchange (KLSE) 19, 118, 124, 132 Kuala Lumpur-Kepong (KLK) group 128, 130 La Porta, R 5, 54, 65–6, 71, 89, 97, 157, 160–1, 204, 217 legal and regulatory environments 3–4 legal framework 3, 96, 97–104, 199–201, 217–25 legal protection and enforcement in different countries, summary of 8–9 legal systems and investor rights and protection 4–6 Levy, J 104 LG Group 25, 179, 190 Li, B 48 Li, D 35 Li, J 156 Li, Y 161 Licht, A 71 Lim, M H 121–3, 130 Lim, S C 175 London Stock Exchange 11 Combined Code 14 listing rules of 6, 10 Low, C K 135 Lynn, S G 66, 138 M&A see mergers and acquisistions Maden, C 177 Index 243 Mahathir, M 20, 123, 125, 132–4 Mahathir–Daim factor in Malaysia 123–4 Mak, Y T 155, 161, 169 Makhija, A K 98–9 Malayan Banking 136 Malayan Chinese Association (MCA) 122 Malayan Indian Congress (MIC) 122 Malaysia Arab-Malaysian groups 127 Bank Bumiputra/BMF 117 Bank Rakyat scandal 117 Barisan Nasional 124 Bumiputera people 19, 120, 122–4, 127 Chinese see Chinese in Malaysia Code of Corporate Governance, Principles and Best Practices of 20 corporate governance 118–20 practices, regulatory framework and 19–20 corporate ownership and control 117–34 study of major firms in preIndependence Malaya 121 top 100 firms 127–32 focus on public governance 119 Gross Domestic Product (GDP) growth Heavy Industries Corporation of Malaysia (HICOM) 127, 135 interlocking stock ownership, interlocking directorship, corporate decline 128–32 Kuala Lumpur-Kepong (KLK) group 128, 130 Kuala Lumpur Stock Exchange (KLSE) 19 118, 124, 132 Ministry of Finance (MOF) 19 National Development Policy (NDP) 120 New Economic Policy (NEP) 118, 123, 128 ownership of share capital of limited companies 121 Pan-El/Multi-Purpose Holdings scandals 117, 134 paradoxes of governance 132 state of capital, corporate development 1970–2000 120–7 state power, patronage and the rise of conglomerates 124–7 state-owned enterprises (SOEs) 24, 126 Surabaya Stock Exchange 75 United Malays’ National Organization (UMNO) 122, 124, 126 Malaysia Airlines (MAS) 117, 131 Manila Electric Company (MERALCO) 140 Marcos, Ferdinand 138 see also Philippines market manipulation 37, 40, 97 pricing system see also securities markets; stock exchanges MBO (Management Buy-Out) deals 106 McConnell, J J 67 mergers and acquisitions 50, 102–3, 105–6, 118, 180, 184 cross-border 217 Milhaupt, C 107 Min, C K 177 minority shareholders 17, 20, 38–41, 78, 205, 225 protection 22–3, 45, 47, 55, 65, 66, 77, 118, 145, 150, 157, 192, 207 Monetary Authority of Singapore (MAS) 159, 164–6, 174 Montes, M F 138–9 Morck, R 99 Mourdoukoutas, P 105 Nakamura, M 99 Nakatani, I 100 Nam, I C 179–80, 183–4, 186 Neave, E H 100 Neptune Orient Lines 155 Nikomborirak, D 216 OECD see Organisation for Economic Co-operation and Development 244 Index Okubo, S 115 Organisation for Economic Co-operation and Development (OECD) 11 “Principles of Corporate Governance” 11–15, 199 board responsibilities 14–15 disclosure and transparency 13–14 shareholders, rights of 12 Oversea-Chinese Banking Corporation (OCBC) in Singapore 136 Over-The-Counter Stock Exchange in Taiwan see Gre Tai Securities Markets (GTSM) ownership 27, 78–9 bank 18, 90 concentration and control 12, 120, 121, 126, 127–32, 145 government 161, 166–7 institutional 204 interlocking 118, 119, 121, 128–30 SOEs 17 structures 7–10, 86–8, 161–2, 166, 205–6, 209 Pacific Economic Cooperation Council (PECC) 12 Palepu, K 115 Park Chung Hee 177, 182 Pauly, L W 113 People’s Bank of China (PBOC) 49 People’s Republic of China (PRC) 7, 27 Accounting Law, new 48 bankruptcy and de-listing mechanism 41 Company Law 38–9 IPO 32, 45–6 corporate governance adopted and proposed measures 44–52 problems of equity structure of listed companies 37–41 corporate takeovers 40 China Securities Regulatory Commission (CSRC) 41, 46–7 corporate governance 29–30 practices, regulatory framework and 15 external monitoring mechanisms 40–1, 49 Guidelines for Article of Association of Listed Companies 38, 47 institutional investors 35 issues highlighted by analysing financial information 41 joint stock company formation, main characteristics for IPO 32–3 law enforcement 51 Provisional Rules on Qualified Foreign Institutional Investors (QFII) 49–50 Shanghai Stock Exchange 15, 28 shareholding structure of listed companies main characteristics of 33–7 shares for residents (A) 28 overseas stock markets (H) 28 Shenzhen Stock Exchange 15, 28 State Economic and Trade Commission (SETC) 45 state owned stocks in listed companies, percentage of 36 stock market statistics 31 Yue Jinman company 42 Philippine Long Distance Telephone Company (PLDT) 150 Philippine Stock Exchange (PSE) 21, 142 Philippines accounting and auditing 151–2 Accounting Standards Council (ASC) 152 Asian Development Bank survey 141 Auditing Standards and Practices Council (ASPC) 152 banking sector 139, 149 Central Bank (Bangko Sentral ng Pilipinas or BSP) 149 Corporate Code 143–5 Index 245 corporate governance in legal and institutional aspects and impact on 1997 financial crisis 138–53 mechanisms 139–42 practices, regulatory framework and 20–1 country-specific obstacles and difficulties 150–2 Directors, Officers, Shareholders and Related Interests (DOSRI) 139, 149 Directors’ Training Institute 153 family ownership 140 Insolvency Law 148–9 legal and regulatory influence 142–50 Manila Electric Company (MERALCO) 140 ownership pattern 139–41 Philippine Stock Exchange (PSE) 21, 142 Presidential Decree (PD 902-A) 20, 142 Professional Regulatory Commission (PRC) 151 response to Asian Financial Crisis (AFC) 149 Revised Securities Act 21 Securities Act or Commonwealth Act 145 Securities Exchange Commission 20, 142 Code of Corporate Governance 20, 153 Reorganization Act (PD 902-A) 145–8 Securities Regulation Code (SRC) 20, 142, 145–8 Philippines Airlines Inc 150 Poe, M 105–6 Price Waterhouse Coopers survey of companies 156 Prowse, S 156 PSE see Philippine Stock Exchange Puthucheary, J J 121 Rahman, A R 71 Rahman, M Z 85–6, 224 Rajan, R G Ramos, President F 139 Rao, R P 66 Regala, A 148–9 Regala, T 148–9 regulatory environment 3–4, 5, 55, 73, 156–9 regulatory framework 3, 27, 57, 73–6, 83, 89, 182–5, 217–25 Reich, S 113 Reid, T relationship versus market-based systems 1–2 Report on the Observance of Standards and Codes (ROSC) see World Bank Roe, M J 99–100 Roesler, K F H 97 Root, H L 138, 182 Ruback, R S 159 rules and regulations 3–5 enforcement of Saldaña, C G 20, 149, 151, 153 Samsung 179, 190, 217 Samsung Electronics xiii Samsung Motors of Korea xiii San Miguel Corporation 150 Saywell, M 103 Schwartz, S 71 SCMP (South China Morning Post) 54, 66 securities markets Indonesia 74–6 Japan 109 Philippines 146 People’s Republic of China 37–51 Seow, J L 163 Servaes, H 67 SGX see Singapore Exchange Shanghai Stock Exchange 15, 28 shareholders activism 17, 67, 108 litigation 105, 107–8 protection of 47, 55, 181, 192, 211 rights 5, 6, 11–12, 13, 14, 17, 64, 203–4 Sheard, P 99 246 Index Sheehan, D 204 Shenzhen Stock Exchange 15, 28 Sherman, H D 104–5 Shieh, T 54 Shimizu, K 101 Shleifer, A xii, xvi, 65, 71, 93, 162, 204 Sibbitt, E C 103 Sieh-Lee, M L 130 Sinar Mas Group in Indonesia xiii Singapore Accountants Act of 1987 158 board composition and leadership 168 classified Newly Industrialized Economy (NIE) by United Nations 156 Code of Corporate Governance 21, 159, 167 Code on Take-overs and Mergers 21, 157 Commercial Affairs Department 159 Companies Act 157 companies and securities legislation, changes to 165 Company Directors Course (CDC) 171 corporate governance barriers to improvements in 172–4 past, present and future 155–74 practices in 168–70 pre-crisis 156–63 recent developments in 164 Corporate Governance Committee (CGC) 167 corporate ownership 21 Corporate Regulation and Governance Policy Committee 164 development of fund management industry 166 disclosure and accounting practices 162–3 disclosure and accounting standards 168 Disclosure and Accounting Standards Committee (DASC) 168 divestment of government ownership 166–7 divestment of non-financial activities by banks 166 Economic Development Board (EDB) 174 external auditing 170 family controlled firms 24 financial sector regulation 159 foreign direct investment (FDI) policy 156 foreign share ownership limits 162 Government Investment Corporation (GIC) 166 government-linked corporations (GLC) 160–1 Inland Revenue Authority (IRA) 174 Institute of Certified Public Accountants of Singapore (ICPAS) 158 Statements of Recommended Accounting Practice (RAP) 158 Monetary Authority of Singapore (MAS) 159, 164–6, 174 ownership structure 161–2 Public Accountants Board (PAB) 158 Registry of Companies and Businesses (RCB) 157, 159 regulation of accounting and auditing 157 regulation of takeovers 157 regulatory environment 156–7 Securities Industry Council (SIC) 157, 159 Securities Investors Association of Singapore (SIAS) 171 Share Ownership Limits, changes to 167 Statements of Accounting Standards (SAS) 158, 162 Stock Exchange Listing Manual and Companies Act 158 stock options 169–70 structural environment 159 Takeover Code 157, 159, 165 Index 247 Singapore Airlines 155 Singapore Exchange (SGX) 157–9, 162, 171 Best Practices Guide (BPG) 163 Listing Manual of 157 Singapore Institute of Directors (SID) 171 Singh, K 160 SingTel 166 SK Group 184, 190 SOEs see state-owned enterprises Solomon, J F 201, 207 South Korea see Korea Standard & Poor, proposed development of Corporate Governance Scorecard 172 state-owned enterprise (SOE) 15, 73, 79–80 in People’s Republic of China 27 listed companies transformed from 32 significant feature of business environments 24 stock market dominated by 17 unlisted 17 Stock Exchange Commission of Thailand (SEC) 221 Stock Exchange of Hong Kong Ltd (SEHK) 57 Stock Exchange of Thailand 216 stock exchanges 18 enforcement regulation see also Hong Kong Exchanges and Clearing Co Ltd; Jakarta Stock Exchange; Kuala Lumpur Stock Exchange; London Stock Exchange; Philippine Stock Exchange; Stock Exchange of Thailand; Singapore Exchange; Shanghai Stock Exchange; Shenzhen Stock Exchange; Surabaya Stock Exchange; Toronto Stock Exchange; Taiwan Stock Exchange Stott, V 54 Su, Y H 205, 207 Suharto 72 Sukarno 71 Surabaya Stock Exchange 75 Taiwan Accountant’s Law 201 accounting and auditing regulations 201–3 information disclosure and transparency 208–9 Accounting Research and Development Foundation (ARDF) 201 Auditing Standards Committee (ASC) of 201 Asian crisis corporate failures since 203 Commercial Accounting Law 201 Company Law 200, 212 Corporate Governance (CG) codes in 211–12 mechanisms 203–4 obstacles and difficulties in improving 204–8 practices, regulatory framework and 22–3 recent reforms in 199, 208–12 scores of firms 203 Corporate Governance Association (CGA) 208 Corporate Governance Best-Practice Principles for business entities 208 for TSE/GTSM Listed Companies 210 family controlled firms 24, 205 Financial Accounting Standards Committee (FASC) 201 Gre Tai Securities Markets (GTSM) 199, 204, 208–9 Independent Directors/Supervisors Registry System 210 Information Disclosure Ranking System 209 Initial Public Offering (IPO) 200 legal framework 199–201 Market Observation Post System 209 Ministry of Economic Affairs (MOEA) 200 248 Index Taiwan – continued ownership structure 205 quasi-public and listed companies 200 relationship-based business enterprises 199 Securities and Exchange Law 200 Securities and Futures Commission (SFC) in 199, 208–9 Securities and Futures Investors’ Protection Center (SFIPC) 211 Securities Investors and Futures Traders Protection Law 208, 211 shareholders’ rights and their protection 211 Taskforce for Reforming Corporate Governance 208 Taiwan market index (TAIEX) 203 Taiwan Stock Exchange (TSE) 199, 204, 208–9 Tan, T W 130 Taylor, L 102 Temasek Holdings 160 Teramoto, Y 99 Thailand Bangkok Bank of Commerce xii Bank of Asia 227 Bank of Thailand 216, 220 Bank of Thailand Act 219 board of directors in companies 23 Budget Procedures Act 219 Business on-line Co., LTD 232 Commercial Bank Act 219 commercial banks 219–20 Conflict-of-Interest 221, 230 connected lending 218 Corporate Debt Restructuring Agency Committee (CDRAC) 216 corporate governance practices, regulatory framework and 23 reform, problems in 216, 231–3 corruption in public sector 231 Department of Business Registration of Ministry of Commerce 232 Department of Commercial Registration 232 family controlled firms 24, 233 Financial Institutions Development Fund 219 German commercial banks 228 governance mechanisms 225–31 insider trading 222 Institute of Certified Accountants and Auditors of Thailand (ICAAT) 224 institutional investors, role of 228–31 legal and regulatory framework 217 leverage ratio among listed companies 219 protection of investors’ and creditors’ rights 217 Public Company Act (PCA) 220 regulation of financial sector 218–20 of accounting standards 224 Securities and Exchange Act (SEA) 222 shareholder protection 223–5 Stock Exchange Commission (SEC) 23, 222, 230 Stock Exchange of Thailand 216 “tiger” economies Tilton, M C 111 Tjager, I N 93 Toronto Stock Exchange 10 Toyota 217 Transparency International 232 Tricker, B 66 TSE see Taiwan Stock Exchange Tsui, J S L 54, 66 Tumbuan, F B G 95 United Engineers (Malaysia) Bhd xiii United Kingdom 15, 125, 156 Combined Code 11, 168 company law 55 enterprises 121 external monitoring mechanisms 40 model for regulating mergers and acquisitions 165 Index 249 pension funds 228 see also Cadbury; Greenbury; Hampel; London Stock Exchange United Nations 1, 156 United Nations Development Programme (UNDP) United States 97, 99–100, 110, 125, 138, 156 California Public Employees Retirement System (CalPERS) 174 external monitoring mechanisms 40 Management Discussion and Analysis 151 mutual funds 228 Section 301 of Sarbanes–Oxley Act of 2002 Securities Act of 1933 97 Securities Exchange Act of 1934 97 Structural Impediments Initiative (SII) 100 separation of supervision and oversight 101 Vernon, R 160 Vishny, R W xii, xvi, 65, 71, 93, 162, 204 voting rights 12–13, 55, 63, 129, 147 Walker, G Wang, Y K 180–1, 186, 191 Warr, P G 26 Watanabe, S 100, 104 Wei, G 35, 44, 48 West, M 107 Williamson, O E 71 Wong, C R 180, 189, 193 Woon, W 176 World Bank 20, 139, 147, 151, 217 high performing Asian economies Report on Observance of Standards and Codes (ROSC) 147–8, 150–1, 152 World Trade Organization (WTO) 45, 51 World War II 105 Worldcom 211 Wu, Z X 199, 208 Wulandari, E R 71 Yafeh, Y 10 Yamamoto, I 100, 104 Yamashita, A 106 Yeh, Y H 199 Yoost, D 106 Yuan, H 44 zaibatsus 18 Zhang, W G 27 Zhou, X 50 Zingales, L .. .The Governance of East Asian Corporations This page intentionally left blank The Governance of East Asian Corporations Post Asian Financial Crisis Ferdinand A Gul PhD, MCom, ACA... emergence of these “tiger” economies? To understand the growth phase of the Asian economies and the severity of the Asian Financial Crisis (AFC), we turn to an important stream of theoretical... impact of the crisis in that market The most important aspect of this survey will be the examination of what measures governments and regulators have made since the crisis, and whether or not they