Inception of Corporate Governance
In Bangladesh, Corporate Governance is relatively new idea. The first initiative was taken by a private consulting firm, Bangladesh Enterprise Institute (BEI), in August 2003 when it conducted a diagnostic study in this field. Based on the study, the BEI published the corporate governance code for Bangladesh in March 2004. Subsequently the Institute of Chartered Accountants of Bangladesh (ICAB) came up with principles and rules to be followed. In January 2006, the SEC issued an order for complying with a number of governance codes. However those conditions are imposed on ‘comply or explain’ basis. The companies listed with any stock exchange in Bangladesh should comply with those conditions or shall explain the reasons for non-compliance.
One reason for the slow progress in adopting corporate governance in Bangladesh is that most of the listed companies in Bangladesh are owned by family members or peers. The owner becomes the chief executive officer and chairman of the board in most cases. According to a survey of BEI, 73% of the non-bank listed companies’ board is dominated by family.
Stock Market of Bangladesh
Bangladesh corporate sectors are in emerging stage. Most of the companies depend on the banks as their major source of financing. But capital market in Bangladesh is emerging as another reliable source. The market capitalization to GDP ratio has been increased over the year 2010 from 30% to 50%. DSE General Index (DGEN) has gained its peak at 8,918.51 point in December 5, 2010 and the lowest value was at 4,568.40 point. Over the year 2010, DGEN increased 82.78% and reached at 8,290.41 point at the end of the year. The total market capitalization of all shares and debentures (excluding t-bills and t-bonds) of the listed securities at the end of December, 2010 also stood higher at USD 49.4 billion, indicating a gain of 84 percent which was higher than USD 26.8 billion at the end of December, 2009. The total turnover has increased from USD 0.13 billion to USD .25 billion which indicates a 91% growth.
During the year 2010, the DJ Global Index experienced 12% gain, whereas Bangladesh capital market (83%) outperformed all the developed markets like USA’s (12%), UK’s (9%) and leading emerging markets like India’s (17%), Hong Kong’s (5%), China’s (-8%). This outstanding performance positioned the Bangladesh capital market in the top three performers of the world.
Corporate Governance in Stock Market
Investors are one of the stakeholders who are affected by corporate governance. Stock market of Bangladesh is yet to be matured. Most of the investors are interested in primary market. If the investors rely on fundamental analysis the corporate governance should affect equities’ price. According to my survey on 2010, it is found that, in most of the cases investors don’t have any idea on the impact of corporate governance. That indicates lack of awareness regarding corporate governance among investors. Speculation and rumor based trading were also found as sole trading basis or as a guiding element of mixed trading strategies. Investors don’t participate in AGM or EGM for raising their voice in corporate governance. But it is optimistic that, most of the investors participated in the survey, want to learn fundamental analysis and apply that in their investment decision. Here is space for govt. to take necessary arrangements.