Asian Financial Crisis

Corporate Governance in the Asian Financial Crisis


Critique on Article by Simon Johnson, Peter Boone, Alasdair Breach, Eric Friedman (2000) "Corporate Governance in the Asian Financial Crisis".

1.Introduction
The 1997-1998 Asian financial crisis have been the most traumatic financial experience in the region in recent times. It shows how vulnerable and connected of all the "emerging markets" across countries and all boundaries of today's economy. The main purpose of this article is to explain the important of the corporate governance, particularly on the minority shareholders protection, have on the extent of exchange rate depreciation and stock market decline. The purpose of the article was clearly and concisely stated and agreed with the title.

2. Summary of the Article
Specifically, the study sought to explain the measure in corporate governance have on the extent of exchange rate depreciation and stock market decline. The author argued that,the corporate governance variable provide a better explanations of the variation in exchange rates and stock market performance during the Asian financial crisis than that of macroeconomic variable, such as the budget deficit, monetary policy, the current account, foreign exchange reserves, and foreign debt.

The author's objectives were attainable, by provide enough data from 25 emerging markets. the key dependent variables were clearly stated, that is the change in the nominal exchange rate depreciation and the change in the stock market decline. these dependent variables were tested against the standard macroeconomic variables; the institutions variables; and the corporate governance variables.

The findings were well organized, sectioned and classified into testable hypothesis. The authors used tables and graphs to present the facts and findings. The main finding by the author showed that the corporate governance variable provide a better explanations of the variation in exchange rates and stock market performance during the Asian crisis than that of macroeconomic variable. Their evidence suggest the corporate governance have the significant effect on the extent of exchange rate depreciation and stock market decline in 1997-1998. The evidence thus provides an alternative explanation to the standard macroeconomic policies on the Asian financial crisis.

3. Limitations of the Article
The article came short of providing effect of inadequate supervision of the banking and financial sectors have on the financial crisis. The weaknesses of the Asia financial market system and the over lending in the real estate sector have not been tested.

4. Conclusion
The authors presented that corporate governance variables are better explanations for the Asian financial crisis than any other macroeconomic variable. Their conclusions were based on a well research and reliable data and their findings are logically stated. The strength of the article, it provides an insight of an extended and alternate theory to the standard macroeconomic theory in explaining the Asian financial crisis. However, it does not cover the effect on inadequate supervision of the banking and financial sectors have on the financial crisis. Overall, it was a very important and significant contribution to the field of research in the study of financial crisis.