High Business Integrity Enhances Profitability

Kuala Lumpur, 20 March 2001

Investors are more likely to invest in companies, which have high business integrity. An international study shows that institutional investors in the Asian region are willing to pay a premium of 20-30% for the shares of companies, which practice good corporate governance.

Securities Commission (SC) Director, Dr Nik Ramlah Nik Mahmood said companies must realise the value of practising high standards of corporate governance and business ethics. She said this during the Seminar on Integrity in Business — The Way Forward, organised by the Anti-Corruption Agency (ACA), the Ministry of International Trade and Industry (MITI) and the Ministry of Domestic Trade and Consumer Affairs in Kuala Lumpur today. The seminar was launched by the Prime Minister, Dato’ Seri Dr Mahathir Mohamad.

"Companies with good corporate governance would be able to attract capital at a lower cost", said Dr Nik Ramlah.

She added "the cost of raising capital will go up as (investors’) perception of the management and worth of the company goes down".

Dr Nik Ramlah also highlighted that good corporate governance would enhance the value of firms in mergers and acquisitions.

"Poor corporate governance is likely to spill over into creating a negative image for the company to other stakeholders, such as customers, creditors and business partners", said Dr Nik Ramlah.

Good corporate governance, is therefore important for the survival, growth and success of a business. However, the impact of poor corporate governance practices extends beyond the company. Listed companies that exhibit poor corporate governance undermine the very markets in which their shares are traded in.

"Credibility earned and sustained over long periods of time can thus be severely damaged by the well-publicised corporate governance misdemeanours of a few companies", said Dr Nik Ramlah.

In recognition of the importance of corporate governance, the SC has taken several measures to spearhead the reforms in this area. Among others, the Finance Committee on Corporate Governance which formulated the comprehensive Finance Committee Report on Corporate Governance. This subsequently led to the issuance of Malaysian Code on Corporate Governance, which essentially codifies the principles and best practices of good governance. The recently revamped KLSE Listing Requirements brought the Code into effect.

Dr Nik Ramlah said the SC is committed towards ensuring that the Malaysian capital market is characterised by high standards of corporate governance. It will develop and build on its efforts in this area through the various measures that have been outlined in the Capital Market Masterplan.


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