Markets Governing Corporations

Abstract

In many East Asian economies, more competitive markets are starting to encourage firms to adopt practices benefiting shareholders, creditors and consumers and move from a relationship to a rules based business model. Prior to the crisis, weak market competition often facilitated poor corporate governance standards and risky corporate behaviour as much as did poor regulations and enforcement. However, corporate exposure to competition varies greatly across the region and in most East Asian economies markets need to be strengthened further before they provide optimal discipline on corporates' behaviour. Strengthening market forces are coming from many sources. Weak banking systems, ongoing prudential reforms and corporate restructuring are pressuring corporates to shift from bank to direct capital market financing. Trade and investment liberalisation, market deregulation and privatisation are increasing goods and services market competition, providing incentives for corporates to seek out the cheapest inputs and finance and adopt more professional management approaches. To succeed in this environment, companies need a rules based business framework and stronger internal governance. This chapter maps major trends in East Asian market dynamics and their impact on the region's traditional and emerging business models.