Bank Ownership and Governance

1
Bank Ownership and Governance

• Fariborz Moshirian, The University of New
  South Wales, Sydney, Australia

2
Bank Ownership and Governance

• Insights into the Corporate Governance of
  Philippine Rural Banks
• Arthur Cayanan, Joselito Florendo, and Andy
  Mullineux
• 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
  Banks
• Arthur Cayanan

3
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
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 principles.
• Suggest regulatory authorities may issue
  specific regulations that facilitate and
  encourage- clearly setting the direction towards-
  the OECD core principles.
• In the spirit of assisting corporate directors,
  committed to making their board work more
  effectively in line with the OECD core
  principles.

5
Asian Currency Crisis

• Lack of transparency and good governance
• The New International Financial Architecture
• Financial Stability as a global public good.

6
Development and corporate governance

• Many factors considered pre-conditions for
  development were actually consequences of it
• Moving from family-controlled and
  state-controlled companies to companies with a
  high percentage of institutional shareholders.

7
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.

8
The Role of Capital Markets and CG Institutions

• 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 regions smallest stock
  market in our region.

9
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.

10
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 investors.

11
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 boards.
• 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.

12
APEC and Financial Integration

• APEC, ASEAN and Corporate Governance in
  Philippines
• Foreign Capital, financial globalisation and CG
• Less reliance on government and more on private
  capital ( not in isolation )
• Home Bias ( in the EU and other places).

13
Financial institutions and economic development

• 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

14
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).

15
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).

16
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).

17
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.

18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
(No Transcript)
22
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.
23
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.
24
The EU
Chart 3. Home bias in the equity market among
euro area countries (annual data)
Sources IMF, Thomson Financial DataStream, ECB
calculations.