Corporate Governance and Corruption: A Comparative Study of Southeast Asia

Abstract

The weak corporate governance framework in Indonesia, as in other countries in Southeast Asia, was deemed a crucial factor in deepening the financial and economic crisis in the late 1990s. Over a decade after the 1997 Asian financial crisis, Indonesia and other Southeast Asian countries have made substantial governance reforms. The reform measures of the institutional framework, both in the public and corporate sectors, were intended to transform Indonesia into a clean, transparent, and accountable country. While the reforms have resulted in increased political stability, improved government effectiveness, and a more conducive investment climate, corruption remains a major concern in Indonesia. This study aims to evaluate how corporate governance mechanisms can reduce the opportunities for corruption. By utilizing agency theory, we argue that a strong corporate governance institutional framework helps to reduce a country's level of corruption. We focus attention on three components of corporate governance mechanisms, i.e., shareholder rights, the quality of the board of directors (BoD), and appropriate accounting and auditing standards, including transparency standards. In an attempt to strengthen corporate governance standards and practices in Indonesia, we conducted a comparative study among Southeast Asian middle-income countries, i.e., Indonesia, Malaysia, and Thailand. We rely on accessible secondary data such as corporate governance codes, laws, and regulations. Our study concludes that the Indonesian corporate governance institutional framework is less stringent compared to Malaysia and Thailand. This condition provides a favorable environment for corruption to persist because the standards and practices are less demanding and the companies do not necessarily have to comply with the existing regulatory framework.

The Mediating Role of Organizational Commitment on the Relationship of Organizational Citizenship Behavior and Organizational Culture with Good Governance among Malaysian Civil Servants

“…The concept of governance was used to aid reform programs organized by fund contributors (World Bank, 2007). The economic crisis in 1997 led to the introduction of major governance reforms in Southeast Asian countries (Yosinta, 2016;Wijayati et al, 2015). Many countries in the Asian region were forced to implement administrative reforms to bolster good governance (World Bank, 2007) that is generally regarded as an existing collective policy and oversight mechanism which enables a sustainable and responsible body to achieve organizational goals.…”

Form over Substance: The Board Governance Practices in Indonesia

“…In line with this, Ananchotikul et al (2010) find that in Thailand, 'talk only' listed firms tend to commit fraud, implying that the firms conform to provisions shallowly without substantial implementation. As the effectiveness of board function in Indonesia is underperformed (ADB, 2017;Siregar, 2019;Wijayati et al, 2015), it is presumed that companies in Indonesia tend to comply formally or symbolically with the Code merely but lack substantive actions.…”

The supply-side of corruption: a review of scenario, causes and prevention measure

“…Meanwhile, Caron et al (2012) argue that corruption is not consistently lower in emerging countries with a higher level of compliance with corporate governance standards such as Russia, Hungary, Turkey, Malaysia, Brazil and Thailand. This is because corporate governance is not standalone; it is part of a political and economic structure that imposes legislation, rules and regulations (Barkemeyer et al , 2015; Wijayati et al , 2015). Thus, the performance of corporate governance as an anti-corruption tool differs across countries.…”