Corporate Restructuring in Thailand after the 1997 Financial Crisis: Evidence from Corporate Governance Reform

Sudchai, Angsumalin (2006) Corporate Restructuring in Thailand after the 1997 Financial Crisis: Evidence from Corporate Governance Reform. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Thailand experienced a down turn in the economy during the financial crisis in 1997. The fundamental element was that at the time companies in Thailand had raised large amounts of money by borrowing to invest in projects that turned out to generate insufficient income to pay back their debts. These circumstances almost automatically led to the crisis because these highly leveraged companies were not only unable to make repayments, but their lenders' own financial standing also deteriorated.

The question of what caused the financial crisis in Thailand that later spread to other countries in the region has been broadly discussed. The main explanation is an implementation of financial liberalisation when the economy was not fundamentally ready and the lack of corporate governance in the corporate sector.

The Thailand Development and Research Institute (TDRI) (1999) suggested a few lessons learnt from the crisis; domestic financial systems should have been liberalized before opening up to foreign capital and strict bank regulation and supervision were necessary for financial liberalization to prevent capital influx and investment in unproductive sectors. Moreover, flexibility of the exchange rate system is required as free capital movement and pegged exchange rates are a dangerous combination. Furthermore, to rely on foreign capital, foreign direct investment is better than portfolio investment and loans since free capital movement, especially short-term, is difficult to control. Finally, good governance in both public and private sectors is important. The corruption in the public sector and the irregularities in business practices lead to a lack of foreign investors' confidence and created efficiency loss.

It has been nearly nine years since the crisis occurred. The Thai economy today is showing signs of recovery, but the optimistic nature of Thais results in more relaxed financial management disciplines in both the business and government sectors compared to the time not long after the crisis. Moreover many skeptics are criticized as having a political agenda against the recent government. These attitudes could expose the economy to future economic collapse.

There are numbers of organizations both in governmental and private sectors gathered up in order to find solutions for the problems in the Thai economy. Corporate governance is one of the business practices that have been brought to many business leaders' attention. Many believe that corporate governance will protect the economy from being vulnerable to a future crisis.

The study conducted by the Thai Institute of Directors Association (IOD) based on the Organization for Economic Cooperation and Development (OECD) principles of good corporate governance in 2005 shows that corporate governance practices in Thailand have improved. Related parties-companies, regulators and investors are now aware of the concepts and applications of corporate governance. However, there is room for improvement especially in the areas of board responsibilities and the role of stakeholders.

Although good scores on the survey cannot guarantee good business performance. Business still has to emphasize its core business that ultimately maximizes wealth. Nonetheless good corporate governance is evidently a prerequisite of wealth maximization. Therefore Thailand needs continuous improvement in corporate governance practices in order to stabilise and secure the future growth of its economy.

Item Type: Dissertation (University of Nottingham only)
Keywords: Thailand, corporate governance, financial crisis
Depositing User: EP, Services
Date Deposited: 09 Nov 2006
Last Modified: 23 Oct 2016 13:02
URI: http://eprints.nottingham.ac.uk/id/eprint/20643

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