Corporate Governance Reforms in Emerging Countries: A Case Study of Bangladesh
Pallab Kumar Biswas
Working Paper: Please Do Not Cite
Abstract: This paper considers three related research questions, all in the context of an emerging economy, Bangladesh: What is the history of Corporate Governance (CG) reform in Bangladesh? What explains the introduction of CG guidelines in Bangladesh? and How have the country-level initiatives to improve CG influenced the firm-level practices of CG? By analysing the agency environment and CG reforms in Bangladesh, this paper finds that, in spite of the number of reform initiatives undertaken since the early 1990‟s, there is scope for further improvement, particularly in monitoring and enforcement by regulators; both external bodies, particularly the International Financial Agencies (IFAs), and domestic forces have affected the extent of CG reform in Bangladesh; and CG regulations take effect over time as the listed companies in Bangladesh are gradually changing their CG practices, based on compliance with the national guidelines. Besides, the introduction of the annual corporate awards by the professional institutions also seems to motivate companies to improve their governance practices. Key words: Corporate governance, reforms, International Financial Agencies
Pallab Kumar Biswas is an Assistant Professor in the Department of Accounting & Information Systems, University of Dhaka, Bangladesh. This paper is a part of his Ph.D. thesis submitted at the University of Western Australia. The author would like to acknowledge the comments and suggestions made by his supervisor, Emeritus Professor Philip Brown.
Corporate Governance Reforms in Emerging Countries: A Case Study of Bangladesh 1 Introduction
Governance arrangements observed in a particular country evolve over many years, even over centuries, although country-wide changes may be introduced in response to a spate of corporate failures or systemic crises. For example, a well-documented governance failure in the 1700s (the South Sea Bubble) revolutionized the then business laws and practices in England while much of the securities laws in the United States date from the stock market crash of 1929 and the accounting scandals of 2001 (Iskander and Chamlou 2000; Thompson 2003). Although corporate failures or systemic crises are often considered to be the major drivers of CG reforms in many countries, it would be unreasonable to think that, in order for change to happen, there must be a crisis. In addition to scandals and corporate crises, Steger and Amann (2008), for example, identified a number of drivers of CG reforms in France, Germany, the UK, and the USA: (a) internationalized capital markets; (b) the harmonization of capital markets through political power; (c) the growing emphasis on investment for a broader part of the population; and (d) privatization. It is to be noted that drivers of CG reforms extend beyond these factors (Hermes, Postma, and Zivkov 2006). The factors identified by Steger and Amann (2008) and others also apply in other jurisdictions. As countries differ in terms of their economic, social, cultural, political and legal development, the drivers of CG reforms may also differ from one country to another. Interesting questions, therefore, remain as to how CG reforms take place, which factors are driving such reforms, and how firms adapt to developments at the national level. Consequently, some researchers have examined the worldwide diffusion of CG codes (Aguilera and Cuervo-Cazurra 2004; Cuervo-Cazurra and Aguilera 2004; Zattoni and Cuomo 2008; Aguilera and Cuervo-Cazurra 2009; Haxhi and van Ees 2010) while some have examined the degree of compliance by firms with national CG standards (Werder, Talaulicar, and Kolat 2005; Arcot and Bruno 2006; Goncharov, Werner, and Zimmermann 2006; Gupta and Parua 2006; Nowak, Rott, and Mahr 2006; Cleyn 2008; Arcot and...
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