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					Bank Ownership and Governance

•    Fariborz Moshirian, The University of
    New South Wales, Sydney, Australia
Bank Ownership and Governance
• Insights into the Corporate Governance of
  Philippine Rural Banks
  – Arthur Cayanan, Joselito Florendo, and Andy
• Rural Banks and Economic Performance
  – Celine Crouzille, Jessica Los Banos, Emmanuelle Nys
    and Alain Sauviat
  Corporate Governance and Financial Reporting of
    Philippines Banks: Private Banks vs Government
  Arthur Cayanan
    OCED Corporate Governance
• The OECD Principles of Corporate Governance
  (1999 and 2004) have been used the benchmark.
• The Asian Corporate Governance Roundtable has
  been held annually since 1999.
• The EU has failed to agree on a common CG
  code. It has also failed to agree a common set
  takeover rules” Andy Mullineux 2006.
• OCED principles as a convergence tool.

4               I have used the paper by Marie dela   3
                Rama 2007, the impact of coroprate
              APEC and CG
• APEC, for instance, “ is committed to a process of
  aligning their corporate governance practices with
  global best practices, consistent with the OECD
• Suggest “regulatory authorities may issue specific
  regulations that facilitate and encourage- clearly
  setting the direction towards- the OECD core
• In the spirit of assisting corporate directors,
  committed to making their board work more
  effectively in line with the OECD core principles.
        Asian Currency Crisis
• Lack of transparency and good governance
• The New International Financial
• Financial Stability as a global public good.
     Development and corporate
• Many factors considered pre-conditions for
  development were actually consequences of
• Moving from family-controlled and state-
  controlled companies to companies with a
  high percentage of institutional
Qualities of domestic institutions
• There have been a number of studies such as
  Dahlquist, M; Pinkowitz, L; Stulz, R; Williamson
  ( 2003) and Ammer el al (2004), Li and Moshirian
  ( 2006) that have demonstrated the role of the
  qualities of domestic institutions ( for instance
  corporate governance) as the contributors to the
  reason for cross-country differences in the way in
  which foreign investors hold or do not hold
  various countries’ assets.
The Role of Capital Markets and CG
• Capital Markets and their institutional
  administrators, stock exchanges, play
  important roles in “fostering good standard
  of corporate governance. ( Rama, 2007)
• World Bank Report
• Philippines has the region’s smallest stock
  market in our region.
 Concentration of Family control
• Top 15 families in the Philippines own over
  55 percent of listed corporate assets.
• The Economist pointed out that “ the family
  ties are so strong in the Philippines that a
  third of the politicians in the Philippine
  congress were related to each other
  paralleling the domination of family owned
  business in the Philippines economy”.
        Twin Agency problems
• Stulz ( 2005) argued “that due to “twin agency
  problems” that arise because rulers of sovereign
  states and corporate insiders pursue their own
  interests at the expense of outside investors… The
  resulting ownership concentration limits economic
  growth, financial development, and the ability of a
  country to take advantage of financial
  globalisation” in ensuring that local companies are
  able to attract more foreign capital and foreign
         Ownership and Control
• Since 2000, the Anglo-American standard of the separation
  of ownership and control with independent directors.
• At least two independent directors on Filipino company
• It is proposed to increase this number to 3 or more.
• Now, we would like to see more than two independent
  directors. At the same time, we need to address other
  related issues such as financial regulation for bank based
  or market based financial systems, business association,
  rating agencies and foreign financial institutions and more
  developed capital market.
 APEC and Financial Integration
• APEC, ASEAN and Corporate Governance
  in Philippines
• Foreign Capital, financial globalisation and
• Less reliance on government and more on
  private capital ( not in isolation …)
• Home Bias ( in the EU and other places).
 Financial institutions and economic
• Panel co-integration analysis, what are the
  differences between the panel co-integration
  analysis and the traditional time series co-
  integration analysis.
• What are the benefits of using panel co-
  integration anlaysis against dynamic panel
  GMM estimation etc
    Role of financial institutions
• With respect to national financial systems and
  economic growth, one strand of literature
  concentrated on the role of financial institutions in
  contributing to economic growth, by considering a
  large number of countries, industries or firms in
  their testing. ( King and Levine 1993; Levine and
  Zerous 1998; Beck, Beck and Levine 2004a), at
  the industry level ( Rajan and Zingales 1998;
  Cetorelli and Gambera 2001; Beck and Levine
  2002), and at the firm level (Demirguc-Kunt and
  Maksimovic, 1998, 2002).
          Financial development
• Another strand of literature has considered the significance
  of financial development for developed countries in the
  17th, 18th and 19th centuries as a way of indicating that
  one of the key reasons for the financial success of the
  current developed countries is because of the sound
  national financial systems that they have developed earlier
  on. The prominent examples are the Netherlands in the
  early 17th century ( De Vries and Woude 1997), Great
  Britain at the end of 17th century (Brewer 1988; Capie
  2001), the United States at the end of 18th century ( Sylla
  1999), and France and Germany in the mid 19th century
  (Born 1983) and Japan in the 19th century (Sylla 1999b).
          Legal system and laws
• Another strand of literature has focused on the institutional
  framework of financial intermediaries and has shown that,
  for instance, the cross-country variation in legal systems
  and laws could explain the differences in financial
  development. (La Porta, et al, 2000 and Beck and Levine
  2004b). Some researchers have also shown that in
  countries in which we can see more effective legal systems
  that protect private investors rights and assets, one can see
  more flows of capital and hence stronger economic growth
  ( Claessens and Laeven 2003; La Porta, Lopez-de-Silanes
  and Shleifer 2005).
Regional Financial integration and
     Limits to Globalisation
• The empirical results in Kho, Stulz and
  Wancor ( 2006) show that “insider
  ownership has not fallen across countries on
  average and for the US data, they find that
  the home bias fell more in countries where
  insider ownership fell more. They also
  argue that “ where we see a decline in
  insider ownership, it is associated with a
  reduction in the level of home bias”.
               The EU and home bias
 Chart 1. Home bias in the equity market for the euro area, the US and
                           Japan (annual data)

Sources: IMF, Thomson Financial DataStream, ECB calculations.
Note: The home bias of the euro area is computed excluding intra-euro area asset trade allocation.
                                       The EU
Chart 2. Home bias in the debt instruments market for the euro area, the
                       US and Japan (annual data)

Sources: BIS, IMF, ECB calculations.
Note: The home bias of the euro area is computed excluding intra-euro area asset trade allocation.
                                        The EU
Chart 3. Home bias in the equity market among euro area countries (annual data)

    Sources: IMF, Thomson Financial DataStream, ECB calculations.

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