CORPORATE GOVERNANCE AND INVESTORS' CONFIDENCE IN THE CAPITAL MARKET

Malaysia’s capital market is expected to grow more than double to RM4.5 trillion by 2020 under current forecasts and could hit RM5.8 if internationalization efforts succeed. The Malaysian capital market is now worth more than RM2 trillion and is home to more public listed companies than any other Asean country and its bond market is the third largest in Asia as a ratio of GDP as at March 17, 2011. The capital market had achieved an annual compounded growth of 11% from RM717.5 billion in 2000 to RM2,033.9 billion in 2010 due to rapid industry expansion and investors’ confidence in the Malaysian capital market. Out of total capital market capitalization RM2,033.9 billion in 2010, 61% or RM1,246.7 billion comes from the stock market, the balance of 39% or RM758.7 billion is from the bond market.


Equity market capitalisation grew by 27% from RM979 billion in 2009 to RM1.2 trillion in 2010 as the market sentiment improved on the back of the launch of new economic programmes. The FBMKLCI also closed at an all-time high of 1,528.01 points on 10 November and has consistently outperformed emerging and advanced market indices

The 2nd Capital Market Masterplan emphasized on good corporate governance practices in order to attract the domestic and foreign market. However, good practices of corporate governance is not enough to attract investors into the market. ENRON, the collapsed U.S company also practices good corporate governance. They even separated the role of CEO and Chairman, despite at that particular time, most American companies combined the two roles. ENRON also appointed independent outside directors to ensure no one individual director can control the board decision making process. Besides that, they also established various board committees such as audit, nomination and remuneration. Despite all the good practices of corporate governance were in place, yet ENRON collapsed?

What went wrong? Although Corporate governance good practices is important in ensuring excellent management, it doesn’t guarantee that a company can performed. What is important are the ethical behaviors of boards of directors, CEOs and senior managers in running a corporation. If the ethical values are embedded solidly in the mind and heart of corporate players, the financial rewards would surely come by easily.