CORPORATE
         GOVERNANCE
              IN ASIA
           Recent Evidence from
         Indonesia, Republic of Korea,
           Malaysia, and Thailand
         Sang-Woo Nam and Il Chong Nam
                October 2004
           Asian Development Bank Institute
            Contents
            Preface ............................................................................................vii
            Executive Summary.........................................................................1
            1.   Introduction..............................................................................5
            2.   Corporate Governance Reform in Asia................................11
                 Key Corporate Governance Problems and Trends in Regulatory
                 Reform............................................................................................... 11
                 Role of Shareholders in Corporate Governance................................15
                 Effectiveness of Boards of Directors.................................................32
                 Role of Banks and Reform of Bankruptcy Proceedings ...................38
                 Remaining Challenges....................................................................... 41
            3.   Questionnaire Survey of Corporate Governance
                 Practices .................................................................................. 45
                 Objectives and Nature of the Survey.................................................45
                 Sample Firms and Respondents ........................................................47
            4.   Evaluation of Shareholders’ Rights and Effectiveness of
                 Boards of Directors ................................................................55
                 Shareholders’ Rights and Disclosure of Information ........................55
                 Effectiveness of Boards of Directors.................................................60
                 Survey Results................................................................................... 64
            5.   Linkage Between the Quality of Corporate Governance and
                 Firm Performance..................................................................89
                 Existing Evidence.............................................................................. 90
                 Scoring Corporate Governance Practices..........................................94
                 Analytical Framework..................................................................... 111
                 Regression Results .......................................................................... 113
            iv  /  Corporate Governance in Asia
            6.   Potential Role of Stakeholders ............................................127
                 Underlying Forces Shaping Corporate Governance........................127
                 Role of Stakeholders ....................................................................... 131
                 Survey Results................................................................................. 137
                 Analyses .......................................................................................... 158
            7.   Conclusion ............................................................................ 167
            Appendixes ................................................................................... 173
            A.   Survey Questions............................................................................. 173
            B.   Scoring Corporate Governance Practices and Opinions .................190
            References..................................................................................... 193
            Tables
            1.   Shareholder Rights and Equitable Treatment of Shareholders:
                 Regulatory Frameworks .................................................................... 17
            2.   Corporate Board of Directors: Regulatory Frameworks ...................34
            3.   Field Survey Sample Size by Country ..............................................50
            4.   General Information on Respondent Firms.......................................51
            5.   General Information Provided by Respondent Directors..................53
            6.   Shareholder Rights and Disclosure of Information:
                 Factual Information ........................................................................... 66
            7.   Effectiveness of the Board of Directors: Factual Information ..........72
            8.   Effectiveness of the Board of Directors: Opinion Survey.................78
            9.   Corporate Governance Score by Country .........................................98
            10. Distribution of Corporate Governance Score by Subcategory and
                 Country.............................................................................................. 99
            11.Distribution of Firm Performance and Corporate Governance
                 Scores .............................................................................................. 103
            12. Correlation Coefficients among Major Variables............................104
            13. Corporate Governance Scores (CGS) by Ownership and
                 CEO Type........................................................................................ 107
            14. Average Values of Key Variables by Country and Industry ............109
            15. Corporate Governance Score (CGS) and Tobin’s q ........................110
                                                    Contents  /  v
        16. Regression Results for Corporate Governance Scores....................114
        17. Regression for Tobin’s q: Basic Equations...................................... 116
        18. Regression for Tobin’s q: With Weighted Average Overall
           Corporate Governance Scores......................................................... 118
        19. Regression for Tobin’s q: With Separate Corporate Governance
           Scores for Firms Controlled by Single Domestic Owner and
           Other Firms ..................................................................................... 120
        20. Regression for Tobin’s q: With Country-Specific Corporate
           Governance Scores.......................................................................... 121
        21. Regression for ROA........................................................................123
        22. Regression for Firm Performance by Country ................................124
        23. Potential Role of Stakeholders in Corporate Governance:
           Opinion Survey ............................................................................... 138
        24. Human Resources and Employee Involvement Practices:
           Factual Information ......................................................................... 152
        25. Regression for Tobin’s q: With Employee Participation Variables .157
        26. Firms Appreciating the Corporate Governance Role of Banks.......160
        27. JLMC Incidence and Corporate Governance Role of Employees ..164
        Figures
        1. Corporate Governance Score by Country .......................................100
        2. Distribution of Corporate Governance Scores: Shareholder Rights
           vs. Board Effectiveness ................................................................... 101
        3. Relationship between Scores for Board Effectiveness....................102
        4. Corporate Governance Scores by Ownership and Control Pattern .108