U.S. Investors’ Response to Philippine Capital Market Liberalization: Evidence from the First Philippine Fund

This paper investigates the impact of liberalization of international investment restrictions in the Philippines on the discounts of the First Philippine Fund (FPF) closed-end country fund. In particular, it investigates whether such restrictions are binding and how U.S. investors see the announced relaxation of restrictions. The overall results suggest evidence supporting the hypothesis that changes in the FPF’s discounts are associated with the announcements of changes in restrictions in international investment.capital markets, liberalization, investment

Has Foreign Entry Made Domestic Banks More Efficient?

Has foreign entry indeed made domestic banks more efficient? Unite's and Sullivan's study, based on a sample of 16 expanded commercial banks (ECBs) and general macroeconomic data for the Philippines for the period 1990-1998, on the whole, supports the view of a general weakening of relationship-style banking brought about by the liberalization of foreign presence in the Philippine banking sector. This has consequences, of course, to the practices in the domestic banking industry. Read more in this Policy Notes.financial liberalization, foreign bank entry, domestic banks, expanded commercial banks

The Influence of Group Affiliation and Ownership Structure on Emerging Market IPOs: The Case of the Philippines

In this paper we report initial returns and long-run performance of IPOs in the Philippines over the period 1987-1997. Within this context we investigate the differential effects on IPO returns of offer size, firm age, industry, market timing, ownership structure, and company affiliation. We find average initial returns of 22.69% for a sample of 104 company IPOs over an 11-year period, 1987 through 1997, and three-year aftermarket adjusted returns of -5.44% for a subset of 65 of these companies. Factors commonly found to affect the level of IPO underpricing are not found significant in the Philippines. Instead, we find that firms affiliated with a corporate group are subject to greater IPO underpricing than unaffiliated firms. We attribute this to affiliated firms issuing IPOs accompanied by a lower degree of information disclosure

Women on Top: Diversity in Gender and Education Profiles of Top Management and Board of Directors of Philippine Publicly Traded Firms

Women have been making headway when it comes to occupying corporate board and senior management positions in companies all over the world, particularly in the Philippines. Stylized facts released by international reports point to the surprising prevalence of women holding leadership positions among Philippine firms. Hence, this descriptive study bridges a gap in the Philippine corporate governance literature by using data on around 250 PSE-listed firms to examine gender diversity composition and trends among CEOs, boards, and top management teams in Philippine publicly traded firms on a five-year interval (i.e. 2003, 2008, 2013) and for the most recent year (i.e. 2014). Additionally, we provide information on the educational profile of CEOs of PSE-listed firms. Our study confirms the existence of a gender gap among governing and managing bodies of Philippine public firms, but observes a gradual improvement in the representation of women in key leadership positions. We also find that most CEOs of PSE-listed firms share a common educational background in terms of undergraduate and graduate degrees received and tertiary schools attended

Gender Diversity in Boards and Performance of Philippine Publicly Traded Firms: Do Women Matter?

The issue of gender diversity in corporate boards has been attracting research interest in various countries because of the many socioeconomic contributions women directors are purported to confer to the firm, some of which involve improved board monitoring quality and a more ethical and democratic form of leadership. This rationale forms part of the “economic case” for women’s participation in boards, apart from the usual grounds of social or equality considerations. We examine this board-level gender diversity issue for the case of the firms traded in the Philippine Stock Exchange during the period 2003 to 2014. Using an unbalanced panel of 2,645 firm-years, we find that greater gender diversity in boards, which in the case of our sample firms also indicates the presence of more female directors in the board, does not significantly affect short-term firm performance as alternatively measured by ROA and ROE, but seems to drive down long-term firm value as measured by Tobin’s Q. Our results are robust with respect to board-level gender diversity measures and are based on estimates that take into account the effects of unobserved individual effects and potential endogeneity of gender diversity. Our findings are consistent with the investor bias theory, which argues that investors collectively drive down the market value of firms with more gender-diverse boards because they have a perceptual bias against women as capable firm leaders and directors. Our results put to question the economic rationale of imposing any minimum gender quota on boards of, at least, Philippine publicly listed firms, similar to the practice in most European countries. We suggest that policy makers must be cautious in proposing quotas that seek to promote gender parity in boards of directors of publicly traded firms based on a claim that it will significantly improve firm performance and shareholder value. Instead, enforcing board-level gender quotas may have to be justified in terms of social equality, business reputation, and purely ethical grounds

Women on Boards of Philippine Publicly Traded Firms: Does Gender Diversity Affect Corporate Risk-Taking Behavior?

The idea that more women belong on corporate boards is attracting increased attention around the world. Some scholars argue that gender diversity on boards improves firm performance and induces more prudent corporate decision-making. This rationale is based on the hypothesis that women are less overconfident and are innately more risk-averse than men. Alternatively, other researchers argue that firms having more female directors are associated with greater corporate risk-taking as the profile of women making it to the board level has proven to be open to greater challenges and risks. Still another strand of literature argues that risk-aversion does not vary between homogeneously male boards and more gender-diverse boards. Thus, in this paper, we report results for our examination of the relationship between board diversity for Philippine firms on corporate risk-taking over the period 2003 to 2015. We use four alternative measures to proxy for corporate risk-taking and employ the two-step Blundell-Bond System Generalized Method of Moments estimation technique to account for endogeneity issues that may influence this relationship. Our findings show that we cannot definitively conclude that the relationship between board diversity and corporate risk-taking is negative. This suggests that the case for greater gender diversity on Philippine corporate boards should be based on fairness, social, and moral considerations, and not to try to improve the level of corporate risk-taking

Independence or In-dependence? Non-Strict Independence Among Publicly Listed Firms in the Philippines

Board independence is thought of as a corporate governance tool that mitigates agency conflicts among firms with either a widely held ownership structure or a highly concentrated ownership structure. As a result, having a high degree of board independence is adopted as the best corporate governance practice in most developed and emerging markets. However, owners of firms with less qualified or non-strict independent directors may not reap the benefits of board independence if such directors are appointed merely for the sake of satisfying quotas or stipulations for best practices. Thus, using data on Philippine publicly listed firms from 2012 to 2015, we construct a measure of non-strict board independence based on the 12 criteria for independence of the 2017 Philippine Corporate Governance Code and examine (1) what type of firm is more likely to appoint non-strict independent directors and (2) the effect of non-strict board independence on firm performance. Using panel data models, we find that firms with a higher ownership concentration are more likely to have non-strict independent directors on the board; however, the presence of these non-strict independent directors do not significantly impact firm performance among firms with high ownership concentration. Our findings support the optimal board independence theory, which posits that non-strict independent directors are appointed primarily to satisfy best corporate governance practices, even if such directors do not have outside expertise or monitoring ability. We conclude that while non-strict independent directors are present among Philippine publicly listed firms, they do not mask any agency problem for firms with large ownership concentration; rather, these directors may have been appointed for the firm to achieve its optimal level of board independence

Defying the Tone at the Top: An Analysis on the Effects of Board Characteristics on the Level of Tax Avoidance Across Philippine Publicly Listed Firms

Over the years, the growing culture of tax avoidance among multinational companies around the world has shed light on the importance of improving corporate governance mechanisms. In the Philippines, poor tax collection due to tax leakages has contributed to chronic fiscal deficits in the country. The literature argues that good corporate governance mechanisms (e.g., the structure of the board of directors) play a significant role in ensuring that the management acts in the best interest of the firm and shareholders, thus eventually helping to mitigate the incidences of corporate tax avoidance. Specifically, agency theory argues that the presence of more independent- and female-dominated boards lead to lesser corporate tax avoidance because such directors are stricter in monitoring management. On the other hand, the resource dependency theory posits that firms with boards having more independent, older, and business-educated directors are more likely to engage in tax avoidance because such directors have the experience, expertise, and knowhow to engage in tax avoidance strategies. This paper examines the impact of various board characteristics on the incidence of tax avoidance across nonfinancial and publicly-traded Philippine firms during the period 2003 to 2015. We use the residual book-tax gap, the cash-effective tax rate, and the long run effective tax rate to measure corporate tax avoidance, whereas board characteristics include board size, board age, board independence, CEO-Chair duality, gender diversity, and the educational background of directors. We employ the two-step Blundell-Bond System Generalized Method of Moments (GMM) estimation technique to address endogeneity issues that may confound the relationship between board composition and structure and the level of tax avoidance within the firm. Overall, we find no significant relationship between board characteristics and tax avoidance, as measured by the long-run cash effective tax rates. However, consistent with the agency and resource dependency theories, we find that board age is positively related with corporate tax avoidance, as measured by the residual book-tax gap, whereas board independence and the proportion of board members with post-graduate degrees in Business and Economics have a negative and positive relationship, respectively, when corporate tax avoidance is proxied by the cash effective tax rate. These findings suggest that the case for increasing the number of independent directors and reducing the number of older directors in boards of Philippine publicly listed firms may help reduce incidences of corporate tax avoidance

Tax Risk, Corporate Governance, and the Valuation of Tax Avoidance Across Philippine Firms: How Do Investors Value Corporate Tax Avoidance?

Tax avoidance has traditionally been thought to enhance firm value because it generates cash savings for reinvestment or distribution to shareholders. More recent literature, however, suggests that tax avoidance valuation may not be so simple. Desai and Dharmapala (2009) introduced the “agency perspective” on tax avoidance, arguing that investors consider the risk of tax avoidance as opening opportunities for managers to extract rents from their firms. Positive tax avoidance value would therefore be conditional on good corporate governance quality. Drake et al. (2017) introduced yet another dimension—tax risk—to the valuation of tax avoidance, arguing that tax avoidance that comes with less variability in tax outcomes (i.e., comes with lower tax risk) should be preferred to those that come with more because investors prefer stable earnings over risky earnings. This policy brief discusses our findings on how public investors in the Philippines value corporate tax avoidance in the contexts of tax risk and corporate governance quality, and policies that can be implemented to enhance firm transparency, increase tax revenues, and raise firm valuations

Does the Presence of Foreign Investors Affect Financial Reporting Quality in Philippine Publicly Listed Firms?

Reinstate accounting conservatism in the Conceptual Framework – Our findings should be of interest to accounting standard setters, given the ongoing debate on the necessity for accounting conservatism as a characteristic for useful financial statements after its initial removal from the conceptual framework in 2010. While there are arguments that conservatism violates the neutrality of financial reports, further discussions show that conservatism can give a more faithful representation of firm performance (Cooper, 2015; International Accounting Standards Board, 2018)