Countries of East Asia: Economic, legal and managerial methods
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- USSR and the US
It is clear that net developed countries, particularly the major economies, have regulated competition. Legal and financial legislation is effective and conducive to business development. However, the initial conditions in emerging markets differ substantially from those of developed markets. The objective of this work is to describe current conditions in five countries in East Asia: Korea, Indonesia, Malaysia, the Philippines and Thailand.
The market and regulatory institutions that play an important role for market discipline are relatively underdeveloped in the countries of East Asia. In a less developed legal, regulatory and institutional environment, information asymmetries are more severe, transaction costs are higher because the standard practices are not developed, the value of contracts is more problematic because of weak participants in the market and the inexperienced regulatory officials.
In such circumstances, it is not surprising that the competitive environment is poor and that markets do not work the same way as in developed countries. In addition to having a poor legal system, the countries of East Asia have no administrative or regulatory agencies to handle issues such as accounting standards and laws of inscription on the market.
In United States and Great Britain, for example, accounting standards are established by a group of professionals in accounting. The rules are understood by professionals in accounting and there is a great motivation to comply. In the countries of East Asia, agents that set accounting standards do not have considerable influence as those in developed countries and are not experts.
Therefore, while accounting standards are not worse on paper than in developed countries, exploitation of these accounting standards is low. Alba, Classen and Djankov (1998) show that accounting practices are relatively deficient in Thailand because of the weak regulatory environment and the lack of well-qualified accountants and auditors in the country.
Development of mechanisms for corporate finance and corporate governance should also be encouraged as these mechanisms play an important role in the motivations to adopt efficient governance. Financial markets in countries of East Asia are likely to be less competitive and may not work well for many reasons. First, the state influences substantial control over these markets.
This control is manifest in a variety of forms, for example, the political pressure on banks in some countries to provide loans with favorable terms while ignoring considerations of solvency. In addition, the state guarantees for banks are usually more perceived in countries of East Asia.
Tags: Economic, legal and managerial methods in East Asian countries, Corporate finance in Asia, Regulatory standards in East Asian finance