Centralized ownership 'contributed to crisis'

Centralized ownership 'contributed to crisis'

MANILA (AFP): The concentration of corporate ownership in many Asian countries contributed to the Asian economic crisis that broke out in 1997, the Asian Development Bank (ADB) said Thursday, citing a study of five affected countries.

The ADB study of Indonesia, South Korea, Malaysia, the Philippines and Thailand said ownership concentration had given the "family-based owners and their affiliated companies excessive power to pursue their own interests to the detriment of minority shareholders, creditors and other stakeholders."

This weakened mechanisms for shareholder protection such as the boards of directors and the voting powers of shareholders and affected transparency and disclosure at these firms, the study by the Manila-based ADB said.

The Asian crisis, which plunged several countries in recession, broke out in mid-1997. Much of the blame has gone to the huge bad loans incurred by many companies in these countries.

The quality of corporate governance varied in the five countries -- in Malaysia the government was trying to strengthen and modernize corporate laws and regulations even before the crisis, the ADB said.

It also said that in most countries, the basic elements of a proper corporate legal and regulatory framework were in place "but compliance and legal enforcement are weak in all five affected countries."

More competition would have helped remedy the problem of over concentration of power, the ADB said, but capital markets in all five countries were still underdeveloped and market competition weak.

Additionally, banks failed to exert the proper discipline on corporations due to "their own interlocking relationship" with some firms as well as the weak supervision and "implicit and explicit government guarantees" to these firms.

In order to address this problem, the ADB called for the strengthening of banking supervision and regulation and improvement of financial reporting standards and enforcement.

Banks could provide "the most effective external control mechanism in the short to medium term" the study said.

It also called for improved standards of accounting and auditing.