RP Gains in Corporate Governance

Manila Bulletin, December 15, 2007 | Go to article overview

RP Gains in Corporate Governance


The Philippines has made significant improvements in corporate governance quality (CGQ), among the economies of Southeast Asia, based on market data reported by non-financial firms from the mid-1990s up to the early 2000s, ranking third behind Hong Kong and Singapore.

This is one of the key findings of a recent (July 2007) study released by the International Monetary Fund (IMF). Among the countries covered by the study are China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand. The report, written by IMF economists Gianni di Nicolo, Luc Laeven and Kenichi Ueda, covered CGQ data in these countries between 1994 and 2003.

Dr. Jesus P. Estanislao, chairman, Institute of Corporate Directors, observed that the study is based on accounting and market data, and not on what regulators have been imposing and trying to enforce. In this regard, they consider the measure as "de facto," i.e. based on performance or outcomes that can be read out of actual market data. The measure is not based on "de jure" requirements from regulators."

Unlike measures based on perceptions, e.g. of investment fund managers, this measure is based on accounting data that are put together on the basis of current finance literature, Estanislao added.

The study found that "corporate governance in most countries has improved overall, with varying degrees and notable exceptions, cross country convergence quality with countries that score poorly initially catching up with countries with high governance scores, and the impact of improvements in corporate governance quality on traditional measures of real economic activity -- GDP growth and the ratio of investment to GDP, is positive, significant and quantitatively relevant, and the growth effect is particularly pronounced for industries that are most dependent on external finance."

The IMF study noted that the CGQ index is a simple average of three indicators, called Accounting Standards (AS); Earning Smoothing (ES), and Stock Price Synchronicity (SPS).

These indicators are constructed from accounting and market data for samples of non-financial companies listed in stock markets taken from the Worldscope and Datastream databases. …

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