East Asia Corporations: Heroes Or Villains
World Bank Publications, 2000 - Business & Economics - 33 pages
East Asian corporations differ from their counterparts in other countries in important ways. Before the recent financial crisis these differences were viewed as one of the reasons for the success of East Asian economies. The crisis altered that view, and many scholars now argue that the weak corporate governance and financing structures of East Asian corporations are partly to blame for the recent crisis. This paper reviews several features of East Asian corporations, showing that they have high leverage and concentrated ownership, are typically affiliated with business groups, and operate in multiple industries. These characteristics affected the performance of corporations prior to the crisis as well as their ability to deal with its aftermath. Each economy's level of development also affected how these characteristics interacted with firm performance and valuation. Finally, the concentration of ownership in the hands of a few large families may have influenced economies' institutional development.
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Asia Ayala Corporation Ayala family cash to control cash-flow and control cash-flow rights Company Handbook control rights controlling owner countries DIFF3 Distribution of multi-segment diversification patterns diversified firms E-mail East Asian corporations East Asian economies East Asian firms excess profit margin expropriation family control Figure financial structures firm performance firm valuation firm value Globe Telecom group affiliation group-affiliated firms Hong Kong income group independent firms Indonesia industry internal markets investment Japan Korea leverage lower Malaysia mean excess value measure median multi-segment firms number of segments ownership structures P.O. Box Philippine Stock Exchange Philippines pre-crisis and crisis quartile ratio of cash ratio of cash-flow Reform relatedness and complementarity relationship between firm returns on assets sales growth sample Sector shareholders Singapore single-segment firms statistically significant Table Taiwan China Thailand U.S. dollars U.S. firms ultimate control ultimate owners vertical relatedness voting rights widely held financial World Bank World Bank Group
Page 10 - Pyramid structures are defined as owning a majority of the stock of one corporation that, in turn, holds a majority of the stock of another — a process that can be repeated a number of times.
Page 11 - Authors' calculations. pyramids and cross-holdings, reflect the importance in Thailand of informal alliances among the small number of families controlling most of Thai companies. Finally, we study the separation of control and management by investigating whether a member of the controlling family, or an employee of the controlling widely held financial institution or corporation, is the chief executive officer, chairman, honorary chairman, or vice chairman of the company. It is generally difficult...
Page 32 - Fan, and Larry HP Lang. 1999. "Expropriation of Minority Shareholders: Evidence from East Asia.
Page 7 - In contrast, we would say that the family owns about 5 percent of the cash flow rights of firm B — the product of the two ownership stakes along the chain.
Page 33 - The Value of a Corporate Vote and Private Benefits: A CrossCountry Analysis.
Page 28 - To avoid discrepancies in the cross-country comparison due to different sample coverage, we have scaled down the control holdings of each family group by assuming that the firms missing from our sample are not controlled by any fanily group.
Page 29 - ... group. by the fifteen largest families. In contrast, family control is insignificant in Japan. These results suggest that a relatively small number of families effectively control most East Asian economies. The question arises whether these families have a strong effect on the economic policy of governments. One direct mechanism for such an effect is the extension of preferential treatment to family members of senior government members. A case in point is the business empire of the Suharto family...
Page 32 - ... While lowering the transaction and agency costs that come about from asymmetric information, trust is not enough to sustain complex operations in an increasingly global market, and arm's length relationships need to be developed. References Claessens, S., S. Djankov and D. Klingebile (1999) Tinancial restructuring in East Asia: half way there?', Financial Sector Discussion Paper 3, Washington DC: World Bank, September.
Page 29 - Over 16 percent and 17 percent of total market capitalization in Indonesia and the Philippines respectively can be traced to the ultimate control of a single family (the Suhartos and the Ayalas respectively) (Claessens et al.
Page 7 - ... with control rights greater than 20 percent. Ultimate owners are further divided into four categories: families and individuals who have large stakes, the state, widely held financial institutions such as banks and insurance companies, and widely held corporations. Our definition of ultimate control means that a firm can have more than one significant owner. If, for example, firm C has three owners — a family, the state, and a widely held corporation — each with 20 percent of voting rights,...