Development of Corporate

Governance in Pakistan.
Corporate Governance.
Corporate governance refers to the structures and
processes for the direction and control of
companies.
Corporate governance concerns the relationships
among the management, Board of Directors,
controlling shareholders, minority shareholders
and other stakeholders.
Good corporate governance contributes to
sustainable economic development by enhancing
the performance of companies and increasing
their access to outside capital.
Why is Corporate governance Important?
Good corporate governance reduces
emerging market vulnerability to financial
crises, reinforces property rights, reduces
transaction costs and the cost of capital,
and leads to capital market development.
Why has corporate governance received
more attention lately?
HOW DOES CORPORATE
GOVERNANCE MATTER FOR
GROWTH AND DEVELOPMENT?
The literature has identified several channels through which
corporate governance affects growth and development:

increased access to external financing by firms.

lowering of the cost of capital and associated higher firm
valuation
Better operational performance through better allocation
of resources and better management.
Good corporate governance can be associated with a
reduced risk of financial crises.
Good corporate governance can mean generally better
relationships with all stakeholders.
Awareness of the importance of corporate
governance is rising in Pakistan

The SECP has become gIn 2002 the

Securities and Exchange Commission of
Pakistan (SECP) issued a Code of
Corporate Governance (Code),
Gradually, regulatory enforcement must
continue to be strengthened and be
applied in a consistent fashion to close the
gap between law and practice.
Market profile

One of world’s fastest growing equity

markets in terms of market capitalization
Market capitalization at the end of 2004
was 1,723 billion rupees, or USD 29.0
billion2, a 95 percent annual average
increase over the past three years
Low cost credit was the traditional source
of external funds
Ownership and control are concentrated
Institutional investors play a limited role
at best
Pakistan is a common law country with a
strong Securities Commission
Investor protection
Basic shareholder rights are protected
Shareholder participation in the AGM
can cumbersome
Concentrated control limits influence of
minority shareholders
Improved quality and timeliness of financial
reporting
Requirement to disclose indirect or ultimate
beneficial ownership easily circumvented
Controversy over related party transaction
disclosure and transfer pricing
No system of independent oversight over the
audit profession
Hurdles in the development of Corporate
governance in Pakistan

o Family-owned Business.
Family Owned business
Growth
Growth

3.2

0.8

0.2
0.5 1 1.5 2 2.5 3 3.5
Corporate sector.
Growth
18
16
14
12
10
8
6
4
2
0
G1 G2 G3 G$
Growth