Question

Explain the role of corporate governance and ethics in international corporate finance by describing cases of synthetic finance in Asia during the global financial crisis

Answer 1

Role of corporate governance and ethics in international corporate finance:

Corporate Governance states that directors of a company must manage the company affairs in the best interest of all the stakeholders like shareholders, employees, customers, Government etc. Especially in this era of globalisation, corporate governance regulations in place help in pushing companies do the right thing, act ethically and cater to the stakeholders' needs effectively and efficiently. It encompasses practically every aspect of management, from planning to internal controls to performance assesnment and transparent disclosures.

Synthetic Finance in Asia during the global financial crisis:

The global financial stability had increased post collapse of the Bretton Woods arrangements and the rise in mobility of international capital flows. Debt deflation in the US, followed by EMS crisis in Europe, Mexican crisis, East Asian Crisis and then the crises in Brazil and Russian Federation. These financial crises have also occured owing to different macroeconomic conditions.

At the outset, sudden reversal of capital flows triggered a currency crisis in Thailand and then spreading in other regions. It was said to have eroded the profitability of firms in China and Mexico as well. Without a credible lender of last resort at the international level, a rational creditor is quite likely to withdraw his lending out of an otherwise healthy country if she expects the other creditors to do the same thing. Thus, underdeveloped financial system, ignored corporate governance at the International level are one of the major reasons for such crises taking place in Asia.