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. I have used the paper by Marie dela Rama 2007, the impact of coroprate governance reforms on two Asia-Pacific stock exchanes for some of the information in this powerpoint.

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 region’s 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”.

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.