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Thailand's corporate financing and governance structures

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  • Alba, Pedro
  • Claessens, Stijn
  • Djankov, Simeon

Abstract

The authors assess Thailand's policy options for reducing large corporations'vulnerability to economic shocks and improving their corporate governance - and for providing smaller firms a more stable funding structure. Using data for firms listed on Thailand's stock exchange, they empirically assess the relative importance of various factors determining the cost of capital, the availability of financing, and policies and distortions that affect corporate governance in nonfinancial firms. The empirical findings highlight weaknesses in corporate governance and the inherent risks in Thailand's corporate financing structures. They conclude that the most important task in improving the structure ofcorporate financing and the framework for corporate governance is to change incentives. This will involve: 1) Accelerating legal reform, including reform of bankruptcy and foreclosure laws. 2) Improving bank monitoring of enterprise management and encouraging banks to develop more arm's-length relationships with firms. This will require greater transparency and disclosure of ownership relationships and stricter enforcement of insider and related lending limits, violation of which contributed poor intermediation and the recent crisis. 3) Improving disclosure and accounting practices. Self-regulatory agencies may need to play more of a role, possibly with more legal power to discipline violators. 4) Better enforcement of corporate governance rules. The formal structure for corporate governance is standard but enforcement is weak. 5) Facilitation of equity infusions. Investors - especially minority shareholders - may need to play a more direct role in monitoring and disciplining managers. To attract new infusions of equity, new equity owners may need more-than-proportional representation on the board of directors until other investor protection mechanisms are strengthened. 6) Improving the framework for corporate governance. A broad public discussion of corporate governance, similar to recent discussions in the United Kingdom and elsewhere, may be needed to clarify the distribution of control in the economy's real sector. 7) Strengthening institutions responsible for gathering and analyzing data on firms of all sizes and for monitoring firm performance and behavior.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2003.

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Date of creation: 30 Nov 1998
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Handle: RePEc:wbk:wbrwps:2003

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Related research

Keywords: Financial Intermediation; International Terrorism&Counterterrorism; Banks&Banking Reform; Payment Systems&Infrastructure; Economic Theory&Research; Financial Intermediation; Banks&Banking Reform; Microfinance; Small Scale Enterprise; Private Participation in Infrastructure;

References

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  1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  2. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  3. Raghuram Rajan & Henri Servaes & Luigi Zingales, 1998. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," NBER Working Papers 6368, National Bureau of Economic Research, Inc.
  4. Singh, Ajit, 1994. "Corporate financial patterns in industrialising economies: a comparative international study," MPRA Paper 54936, University Library of Munich, Germany.
  5. Franklin Allen & Douglas Gale, 1994. "A welfare comparison of intermediaries and financial markets in Germany and the U.S," Working Papers 95-3, Federal Reserve Bank of Philadelphia.
  6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  7. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Market Development and Financial Intermediaries: Stylized Facts," World Bank Economic Review, World Bank Group, vol. 10(2), pages 291-321, May.
  8. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
  9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  10. Caprio, Gerard, Jr & Demirguc-Kunt, Asli, 1998. "The Role of Long-Term Finance: Theory and Evidence," World Bank Research Observer, World Bank Group, vol. 13(2), pages 171-89, August.
  11. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1996. "Financial constraints, uses of funds, and firm growth : an international comparison," Policy Research Working Paper Series 1671, The World Bank.
  12. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  13. Jeremy C. Stein, 1995. "Internal Capital Markets and the Competition for Corporate Resources," NBER Working Papers 5101, National Bureau of Economic Research, Inc.
  14. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
  15. Larry H.P. Lang & Rene M. Stulz, 1993. "Tobin's Q, Corporate Diversification and Firm Performance," NBER Working Papers 4376, National Bureau of Economic Research, Inc.
  16. Demirguc - Kunt, Asli & Maksimovic, Vojislav & DEC, 1994. "Capital structures in developing countries : evidence from ten countries," Policy Research Working Paper Series 1320, The World Bank.
  17. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
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Citations

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Cited by:
  1. Jian Tong & Chenggang Xu, 2004. "Financial Sector Returns and Creditor Moral Hazard: Evidence from Indonesia, Korea, and Thailand," William Davidson Institute Working Papers Series 2004-687, William Davidson Institute at the University of Michigan.
  2. Mody, Ashoka, 1999. "Industrial policy after the East Asian crisis - from"outward orientation"to new internal capabilities?," Policy Research Working Paper Series 2112, The World Bank.
  3. Richard J. Herring & Nathporn Chatusripitak, 2000. "The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development," Center for Financial Institutions Working Papers 01-08, Wharton School Center for Financial Institutions, University of Pennsylvania.

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