| Abstract | This study examines Thai corporate governance system by focusing on corporate
governance mechanisms-firm performance relationship and linkages between corporate
governance mechanisms in the pre financial crisis period ( 1994-1996), and differences in
corporate governance mechanisms between the pre and post financial crisis periods, as
well as the robustness of the corporate governance mechanisms-firm performance
relationship in the post financial crisis period (1999-2001 ). Thai corporate governance
system is viewed as consisting of managerial ownership, bank ownership, and debt
pressure. Using data from firms in the financial sector (finance and insurance industries)
and nonfinancial sector (building, property, textile, and agriculture industries) in the Stock
Exchange of Thailand (SET) provides a sample size of 191 firms and 159 firms in each of
the pre and post financial crisis periods, respectively.
The study finds that, in the pre crisis period, managerial ownership beyond 25 %
and debt pressure are significantly and negatively related to firm performance, while bank
ownership is not significantly related to firm performance. This suggests the lack of
effective corporate governance mechanisms, and at the same time indicates nygative
impacts of managerial ownership concentration and debt pressure on firm performance. As
for linkages between the mechanisms, the study finds that 1) managerial ownership is
negatively related to bank ownership, 2) debt pressure is independent of other governance
mechanisms, and 3) change between years of a governance mechanism has no relationship
with change in another governance mechanism in other years. Neve1theless, debt pressure
is found to have negative moderating effect on managerial ownership-firm performance in
both the financial and nonfinancial sectors, and have negative moderating effect on bank
ownership-firm performance relationship but in the financial sector only.
On the changes in corporate governance mechanisms, the study finds that
differences in the mechanisms between the pre and the post crisis periods are significantly
observed only in the finance industry. In this industry, it is fo und that managerial
ownership and debt to equity ratio decrease significantly, while bank ownership and
institutional ownership (additional mechanisms) increase significantly. Such findings
indicate that magnitude of changes in the mechanisms varies depending on industries, and
111
directions of the changes are dependent upon how the mechanisms are affected by forces
such as the financial crisis, law, and financial market.
Furthermore, the study finds that the corporate governance mechanisms-firm
performance relationship is not always robust in the post crisis period. The relationship in
the two periods is found to be different in two aspects. First, in the pre crisis period,
managerial at the level beyond 25 % has significant relationship with firm performance,
whereas in the post crisis period, such relationship is not found. Second, changes in the
level of managerial ownership and debt to equity ratio in the post crisis period have smaller
impact on firm performance than the pre crisis one. These findings suggest that the
relationship between some corporate governance mechanisms and firm performance
change over time.
Even though differences in the relationship between the two periods are found, the
study's findings of the post crisis period support the suggestion derived from the pre crisis
counterpart that Thai corporate governance system does not have effective mechanisms.
This is due to the fact that, in the post financial crisis analysis, the mechanisms of
managerial ownership, bank ownershi p, and debt pressure do not have significant and
positive relationship with firm performance. To improve Thai corporate governance
system, the study underlines the need for effective monitoring mechanisms which, in
particular, are capable of reducing and counter-balancing the excessive power of insiders,
as well for promoting a diversity of governance mechanisms into the Thai system |