INTERNATIONAL SEMINAR

FRAUD IN ACCOUNTING
AND BUSINESS

The Landscapes of Corporate Governance in Asia:

Are the Mechanisms Effective in Fraud Prevention?

Prof. Dr. Norman Mohd Saleh

25th July 2022
Background
• Corporate governance is the system by which companies are directed and
controlled. Boards of directors are responsible for the governance of their
companies.
• Property rights literature emphasizes the roles of customs, social norms, and law
and legal systems in shaping the structure of property rights and governance
systems (Claessen & Fan, 2002).
• Comparative corporate governance research (La Porta et al. 1997; 1998)
• Law and legal enforcement on the governance of firms,
• The development of markets, and
• Economic growth

01.
CG Score among selected Asian countries
This category assesses
rules on paper, not the
implementation or
enforcement of those
rules. Australia continues
to lead the way followed
by Malaysia and Thailand,
which despite their
political challenges have
long had a solid set of
laws and regulations.
Hong Kong and
Singapore are slightly
behind.

02.
Ownership Structure in Asia
Characteristics (Claessen & Fan, 2002) :
• Shares are diffusely held,
• One or several members of a family domination,
• Control by means of stock pyramids and cross-
shareholdings (complex) – extensiveness varies across
Asian countries,
• Control right > Cash flow right
• Financial institutions control is rare – except in Japan

03.
Family Ownership and
Earnings Quality
The influence of family
ownership on earnings
quality is more dominant
in firms that engage in
expropriation activities
than in firms that do not
engage in such activities.

04.
Ownership Structure in Asia
• More concentrated ownership will be observed in economies
where property rights are not well enforced by the state.
• The weak state enforcement of property rights is the most
probable cause of the concentrated ownership of Asian
corporations as well, as these companies often confront weak
legal systems, poor law enforcement and corruption.

05.
Controlling Shareholder Ownership Structure and
Conflict-Related Party Transactions

Companies with large

direct, indirect and
pyramidal ownership
at more than 33% of
shareholding engaged
with conflict related
RPTs.

06.
Incentive Effects of
Concentrated Ownership
• Entrenchment effect vs alignment effect
• The state as controlling owner

07.
Corporate Governance Mechanisms in Asia

• Minority Shareholders
• Takeovers and internal governance (Board)
• Alternative governance mechanisms
• External Auditors
• Equity Analysts
• Dividend Policy
• Foreign listings

08.
Monitoring by Minority Shareholders

• Significant equity stake -Directly monitor

• MSWG
• Certification – Institutional investor’s reputation

09.
Takeovers and internal governance (Board)

• Hostile and disciplinary takeovers are rare.

• Board dominated by insiders.
• Politicians and state-controlling owners occupy most board seats

10.
Alternative Governance Mechanisms

• External Auditors
• Equity Analysts
• Dividend Policy
• Foreign listings

11.
Auditor Skepticism and The Assessment of Misstatement risk

12.
Audit & Audit regulators
Assess a range of standards and
practices that all markets follow
or at least sign up to, namely
international standards on
accounting and auditing, the
creation of independent audit
regulators (often called “audit
oversight boards” or AOBs), the
drive for higher quality audits of
listed-company financials, and a
more transparent and
accountable auditing process.

13.
Other Institutional
Factors
• Legal environment and
equity market
• Public governance

14.
Conclusion
Uniquely Asian

• Group Affiliation
• Corporate diversification
• Corporate disclosure and
• Transparency, and The role of banks and other financial
institutions

15.
Terima Kasih!

Thank you for your

participation!

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