Corporate Governance and Strategic Transparency: East Asia in the International Business Systems

Abstract

This paper discusses the determinants of strategic transparency and its importance to the East Asian firms. Firm's strategic transparency is closely associated with firm's relative market position and the degree of competitiveness it can achieve. Accordingly, the governance structure is fairly determined by information transparency, which helps strengthen firms' position and value when in a strong competitive market position and less information transparency is observed when the firm is in a weak market position. The paper argues that one of the common factors that determine the success of corporate governance structure is the extent to which it is transparent to the market forces within particular institutional arrangements. When the institutional arrangements favor mandatory versus voluntary corporate disclosure, we suggest a reform measure for the East Asian corporate governance system that relies, inter alia, on the percentages of long-term and short-term financing to total financing. The higher the percentage of long-term financing, the more we can infer the extent of outside investors' confidence in the future of the East Asian firms. When more active role of banks involvements with the firms' business is permitted and an effective banks' and firms' strategic transparency can be assured, the East Asian banks and stock market can both lead firms to long-term favorable achievements. We also suggest that the protection of both shareholder's rights and creditors' rights can go in parallel lines with the latter is to be given first priority until the investors' confidence in the near and far future of East Asia corporate governance system is built.