Corporate Governance, Firm Profitability, and Share Valuation in the Philippines

This study examines 73 publicly listed companies in the Philippines to determine the relationship between the quality of corporate governance practices and company performance. It concludes that as a company’s corporate governance practices improve, there is likely to be positive and signifi cant impacts on its market capitalization, market valuation, and profi tability. The study was jointly conducted by the Asian Development Bank, the Institute of Corporate Directors, and the University of Asia and the Pacifi c.


aSean Corporate Governance Scorecard
The ASEAN Corporate Governance Scorecard (ACGS) is a benchmarking tool based on international best practices for assessing the corporate governance performance of publicly listed companies in the six participating member countries of the Association of Southeast Asian Nations (ASEAN). Launched in 2011, it was an initiative of the ASEAN Capital Markets Forum (ACMF), composed of capital market regulators from the ASEAN member countries, in collaboration with the Asian Development Bank.
The objectives of ACGS are to raise the corporate governance standards of ASEAN publicly listed companies (PLCs), encourage long-term sustainability and resilience of firms, complement the other ACMF initiatives, and promote ASEAN as an asset class to foreign investors. Prior to the design of the ACGS, all six participating countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam) already had their national scorecards. Although these scorecards were generally based on international standards, there were obvious differences in assessment methodology, focus areas, and questions. This meant that results of these scorecards were not comparable. In short, there were national champions, but no regional ASEAN champions.
The design of the ACGS is based on the following principles: (i) reflect global principles and internationally recognized good practices in corporate governance applicable to PLCs; (ii) encourage PLCs to adopt higher standards and aspirations; (iii) be comprehensive in coverage; (iv) identify governance gaps, but also feature good governance practices; (v) be applicable to different markets in ASEAN; (vi) provide accurate assessments beyond minimum compliance; and (vii) provide robust quality assurance to ensure independent and reliable assessment.
The countries participating in the ACGS are Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam.
The ACGS covers the five main corporate governance principles promoted by the Organisation for Economic Co-operation and Development: (i) rights of shareholders, (ii) equitable treatment of shareholders, (iii) role of stakeholders, (iv) disclosure and transparency, and (v) responsibilities of the board.
The ACGS was introduced in the Philippines in 2013 under the auspices of the Securities and Exchange Commission (SEC). 1 Corporate governance assessment based on the ACGS has since been conducted annually by the Institute of Corporate Directors (ICD), the SEC-appointed domestic ranking body in the Philippines.

aSean Corporate Governance Scorecard performance
From 2012 to 2016, the Philippines steadily improved its corporate governance standing under the ASEAN Corporate Governance Scorecard (ACGS) (Figure 1). Philippine PLCs as a group recorded a low total score of 48.9 during the first ACGS assessment in 2012. This was partially due to the fact that Philippine PLCs were not aware of the requirements of the ACGS, hence the decision of the SEC to join ACGS on a pilot basis. This prompted greater engagements by the SEC and the ICD with the PLCs to explain the requirements of the ACGS and the differences with the national scorecard of the Philippines as well as promote stronger commitment in adopting and implementing the governance practices embedded in the ACGS. Over the following years, a steady improvement was achieved in the total score as well as in the scores in all the five areas of assessment under the ACGS. By 2016, the total score averaged 74.6.
However, the performance for the different areas of assessment was uneven. PLCs in the Philippines generally perform well in the Rights of Shareholders (Part A) and Disclosure and Transparency (Part D) sections. The results in the Part A for 2015 shows that the average score of Philippine PLCs (7.62) was only behind Thailand (9.06), and better than Singapore (7.37) and Malaysia (6.20). 2 Some leading practices include disclosure of voting and vote tabulation procedures in companies' information statements, and minutes of annual shareholders meetings indicate that resolutions adopted during the meetings and are made publicly available the next working day. Although Philippine PLCs also perform well in Equitable Treatment of Shareholders (Part B), the average score of 11.74 in 2015 is still relatively lower than Thailand (14.75), Malaysia (13.04), and Singapore (12.73).
The sections that require most attention and improvement are Role of Stakeholders (Part C) and Responsibilities of the Board (Part E). The average scores for both sections have seen some improvements from 2012-2016 but have also consistently remained the sections with the lowest scores throughout the 5 years of assessment. In 2015, the average score of Philippine PLCs in Part C (5.45) was lower than Thailand (8.09), Indonesia (6.96), Malaysia (6.70), and Singapore (5.70). Similarly, the average score of Philippine PLCs in Part E (26.51) is lower than the average score in most other ASEAN countries including Singapore (29.71), Thailand (29.68), and Malaysia (29.22). According to the 2015 report, one area for improvement in Part C of Philippine PLCs is providing specific contact details to stakeholders so that they can raise possible violations of their rights. General contact details typically found on company websites are insufficient. Commitment to stakeholders should be facilitated with easy communication.
For Part E, areas that require improvement include: (i) the board should be composed of at least 50% independent directors, (ii) companies should have a policy that limits to five board seats in publicly listed companies that an independent or nonexecutive director may hold simultaneously, and (iii) companies should also have a term limit of 9 years or less for its independent directors (footnote 2). Some of these issues are already included in the Corporate Governance Blueprint of the Philippines (discussed below). Engagement on their importance and assessment of compliance will be important to prompt improvement. .

Corporate Governance philippine regulatory reform
In the years covered by the study, three key corporate governance policies were developed and implemented in the Philippines. First, in 2013, the SEC required all PLCs to issue an annual corporate governance report, which consolidated all their governance policies and practices into one report for easy reference. The report was mandatory and due to be submitted by June of every fiscal year. In addition, in October 2013, to improve transparency, the SEC required all PLCs to upload their annual corporate governance reports on their respective websites. Prior to this, disclosures by Philippine PLCs were not centralized: some information were posted on their websites, some were posted through the Philippine Stock Exchange, and some were disclosed through the SEC. As a result of this requirement, investors now have a one-stop reference for all disclosures of a PLC.
Second, in 2015, SEC published the Philippine Corporate Governance Blueprint to serve as a 5-year roadmap for building a stronger corporate governance framework. This initiative was supported by ADB and was developed through a robust process that combined using the OECD principles as reference point for international best practice and through consultation with local PLCs, governance advocates, academe, and corporate governance stakeholders. Using the globally accepted principles of corporate governance, the blueprint made the corporate governance regulatory framework geared not only toward compliance, but also toward addressing challenges faced by companies in the country.
Many of the recommendations contained in the blueprint are consistent with the best practices espoused by the ACGS, which include the following: (i) Release of the information statements 28 days before the annual shareholders meeting. Rationale and explanation of each agenda item that requires shareholders' approval should be provided.
(ii) Right of shareholders to nominate candidates to the board. In publicly listed companies, full disclosure of the background and experience of the candidates to the board (including other board positions) is expected.
(iii) Material or significant related party transactions (RPTs) and similar matters involving conflicts of interest should be disclosed fully, accurately, and in a timely fashion.
(iv) Mechanisms enhancing employee performance are encouraged. Programs and relative information on the welfare and development of the employees should be available.
(v) Companies should have a formal and transparent board nomination process. There should also be succession planning for key management positions.
(vi) There should be a right mix of backgrounds and competencies in the board; thus, companies should have a board diversity policy and are encouraged to have female independent directors. 3 Finally, in 2016, the SEC revised and issued the Corporate Governance Code for PLCs. This code encouraged and steered companies to apply practices at par with global standards in order to attract foreign investments. It also addressed the perceived "overregulation" of SEC by opting for a "comply or explain" approach, providing more flexibility for companies. This is a marketbased approach that requires PLCs to disclosed non-compliance, which then relies on investors to provide feedback and challenge the management, if necessary.
The revised code focuses on five key areas: (i) the board's governance responsibilities, (ii) disclosure and transparency, (iii) internal control system and risk management framework, (iv) cultivating a synergistic relationship with shareholders, and (v) duties to stakeholders.
With 16 principles and 67 best practice recommendations, the code raised corporate governance standards of Philippine PLCs, and fostered a conducive governance system accountable to shareholders and stakeholders.
These policies, complemented with intense engagement led by SEC and ICD with the PLCs, contributed to the improvement in the average score of Philippine PLCs from 48.9 in 2012 to 74.6 in 2016, thus making the Philippines one of the most improved countries. In fact, in 2015, 11 Philippine PLCs were ranked in the top 50 ASEAN PLCs, which placed the Philippines second behind Thailand, which had 23 PLCs in the top 50. 4 This achievement demonstrated that Philippine PLCs are able to stand toe to toe with other PLCs in the ASEAN region and subscribe to international corporate governance best practices, contrary to the belief of some local stakeholders who felt that said international best practices would stifle innovation and entrepreneurship.
The improving performance of Philippine PLCs motivated the SEC to formulate policies that would further strengthen the governance framework and implementation by companies from various industries. In support of this effort, ICD undertook the quantitative assessment in the next section. After 5 years assessing corporate governance practices, ICD felt the need to evaluate the impact of the ACGS scores on the financial performance of Philippine PLCs.

2. reSearCh problem
The study sought to determine the impact of the quality of corporate governance practices on the market capitalization, market valuation, and profitability of publicly listed companies (PLCs) in the Philippines.

obJeCtiveS oF the Study
The study aims to (i) measure the quality of corporate governance practices of Philippine PLCs using the ASEAN Corporate Governance Scorecard (ACGS) score, (ii) measure the market capitalization of Philippine PLCs using data from the Philippine Stock Exchange (PSE), (iii) measure the market valuation of Philippine PLCs using the Tobin's Q ratio, (iv) measure the profitability of Philippine PLCs using the return on equity ratio, (v) determine the relationship between ACGS score and market capitalization of Philippine PLCs, (vi) determine the relationship between ACGS score and Tobin's Q ratio of Philippine PLCs, and (vii) determine the relationship between ACGS score and the return on equity ratio of Philippine PLCs.
The results of the study will be used to help resolve issues regarding the financial benefits of good corporate governance practices. They will serve to inform board directors, compliance officers, and corporate secretaries of Philippine PLCs as well as regulators, investors, and other stakeholders.

4. revieW oF related StudieS
Studies have been conducted on the relation between corporate governance and the financial performance of a firm in both developed and emerging markets. Some of these studies used an index to measure the overall corporate governance practices of companies. Other studies considered the relationship of specific aspects of corporate governance on firm performance. There are studies that provided evidence on the benefits of adopting good corporate governance practices. There are also studies that presented opposing conclusions on the relation between corporate governance practices and firm performance.
Khanna (2016) used secondary data taken from the annual reports of publicly listed companies from the Indian manufacturing sector for the period 2011 to 2015. These companies were from the consumable goods, fast-moving consumer goods, pharmaceutical, and automobile sectors. The study measured the corporate governance practices of the manufacturing sector of India, and the relationship between corporate governance and the profitability of the manufacturing companies. The study considered the relationship between each corporate governance parameter given in the Securities and Exchange Board of India (SEBI) clause 49 of the listing agreement and return on assets, a measure of profitability. The seven parameters given in the SEBI clause 49 of the listing agreement are as follows: The secondary data were analyzed using correlation analysis and multiple regression analysis. The dependent variable is return on assets or profit before tax and interest divided by total assets. The independent variables are the seven parameters of corporate governance. The results showed that the level of corporate governance among the Indian manufacturing companies is high. The findings also showed that four parameters of corporate governance-board composition, board ownership or shareholding pattern, disclosures, and other compliance-have a positive and significant impact on the profitability of Indian manufacturing companies. The study concluded that better corporate governance can lead to higher profitability. Cheung et al. (2014) investigated the relation between the quality of corporate governance practices and market valuation for listed firms in five Asian ADB member economies: Hong Kong, China; Indonesia; the People's Republic of China; the Philippines, and Thailand. The study used a survey instrument that is based on the OECD Corporate Governance Principles (OECD, 1999), which cover five aspects of corporate governance (rights of shareholders, treatment of shareholders, roles of shareholders, disclosure and transparency, and board responsibilities). The survey quantified the quality of corporate governance practices through a Corporate Governance Index (CGI) value for each company, which ranges from 0 to 100. High CGI scores indicate good corporate governance practices while low CGI scores indicate poor corporate governance practices. The study used Tobin's Q ratio as the measure of firm market valuation. Tobin's Q ratio was defined in the study as the sum of the market value of equity plus book value of total interest-bearing debt divided by the sum of the book value of equity plus the book value of total debt. Market value was the market value of shareholders' equity (in millions, in local currency). The ordinary least squares regression model used control variables: firm size (natural logarithm of the book value of total assets in local currency at the end of the fiscal year), leverage (total interest-bearing debt divided by total assets), liquidity (the balance sheet value of cash and cash equivalents divided by total assets), and the level of investment (capital expenditures divided by total assets). Variables to indicate the survey year are also included as a year fixed effect.
The study used annual publicly available information from publicly traded firms to rate the corporate governance practices of the major companies in each of the stock markets.
The empirical results showed that there is a positive relation between the quality of corporate governance practices as measured by the CGI and firm valuation in the five countries. To verify the robustness of the findings, the study used two-stage least squares regression analyses to check on whether well-performing firms tend to improve their corporate governance practices. The results confirm the positive relation between the quality of corporate governance practices and firm valuation. Klapper and Love (2003) examined the relationship between the CGI score and firm performance for 374 firms in 14 emerging markets. The results showed that better corporate governance practices among emerging markets is highly correlated with better operating performance and market valuation. The study likewise provided evidence showing that firmlevel corporate governance practices matter more in countries with weak legal environments. The results showed that firm-level governance and performance is lower in countries with weak legal environments i.e., weak shareholder rights and inefficient enforcement.
The data for the study came from the Credit Lyonnais Securities Asia (CLSA) 2001 report, which provided corporate governance rankings for 495 firms across 25 emerging markets and 18 sectors. The descriptive statistics in the CLSA report showed that companies which got high rankings in the CGI had better operating performance and higher stock returns. The governance index covers seven categories: management discipline, transparency, independence, accountability, responsibility, fairness, and social awareness. Klapper and Love (2003) used multivariate regression analysis to further investigate the relationship between governance and performance. They used the computed governance index of CLSA as the independent variable, although they excluded the social awareness category. They used Tobin's Q ratio and return on assets (ROA) as dependent variables. Tobin's Q ratio was used to measure the market valuation of assets and ROA was used to measure operating performance. ROA was defined as net income over total assets. They also used other measures of operating performance such as gross margin and return on equity.
The results showed that better corporate governance is associated with higher operating performance and that the CGI is higher in countries with good legal environments.
Bhagat and Bolton (2007) sought to provide a comprehensive and "econometricallydefensible" analysis of the relation between corporate governance and firm performance. The authors used a total of 24 metrics composed of nine governance metrics, five performance metrics, two endogenous metrics, and eight control variables. The study covered a period of 15 years (from 1990 to 2004) with the sample size reaching up to 25,000.
A series of robustness tests was also conducted to check the soundness of the statistical model and corresponding assumptions. The tests included the validity and strength of instruments used, assessment of variable estimators, estimation of standard errors, and alternate measures of leverage.
The Bhagat and Bolton (2007) study found that good corporate governance was positively and significantly correlated with operating performance. However, none of the governance metrics are correlated with stock market performance.

ConCeptual FrameWorK
The study reported here is modeled after Cheung et al. (2014) with a number of additions and variations. The market capitalization of the firm is added as a dependent variable. Return on equity as a metric of profitability is also added as a dependent variable. Finally, the formula for Tobin's Q is simplified given the available data.
The independent variable for the study is the ACGS score of Philippine PLCs for the years 2014, 2015, and 2016. The dependent variables are market capitalization (stock price multiplied by number of shares outstanding as supplied by the Philippine Stock Exchange), Tobin's Q ratio (equity market value divided by equity book value), and return on equity or ROE (net income divided by the shareholders' equity). 5 The organizational factors are the control variables: firm size (natural logarithm of the book value of total assets in local currency at the end of the fiscal year), leverage (total liabilities divided by the shareholders' equity), liquidity (the balance sheet value of cash and cash equivalents divided by total assets), and the level of investment (fixed assets divided by total assets and net income divided by common equity). Variables to indicate the survey year are also included as a year fixed effect. 12 6. methodoloGy

Scope and limitation
The study sample consists of 73 PLCs, each of which had an ACGS score of 60 points or higher in the years 2014, 2015, and 2016. The cutoff score was imposed in the sample selection based on the observation by the study team that a company with a score of 60 or higher tends to have a conscious and deliberate effort to comply with the governance requirements of the ACGS; hence, the achievement of good financial performance is not a random occurrence. The excluded PLCs were also seen to be outliers in the data set that could potentially cause "non-normality" in the results. In view of these limitations, regression with the panel-corrected standard errors (PCSE) was used to reduce the effect of the limitations.
Of the three dependent variables, the study puts an emphasis on market valuation indicated by Tobin's Q. Tobin's Q ratio follows the hypothesis that the aggregate equity market value of all companies in the stock market should be about equal to their replacement costs. Calculated by dividing the equity market value of the firm by its equity book value, the Q ratio serves as a method of firm valuation by showing whether a firm is overvalued or undervalued by the market. A Q ratio value between 0 and 1 means that the firm's perceived value in the market is lower than its total asset value. On the other hand, a Q ratio value of greater than 1 means that the market has placed a premium value on the firm more than the equity book value it possesses.

research design and data analysis
The methodology used in the study was adopted generally from the study of Cheung et al. (2014). Descriptive statistics (i.e., mean and standard deviation) were computed for the independent, dependent, and control variables of each company for each year. Regression with PCSE was used to examine the relationship between the ACGS score and market capitalization, between the ACGS score and Tobin's Q ratio, and between the ACGS score and return on equity ratio.
The PCSE model used control variables: firm size (natural logarithm of the book value of total assets in local currency at the end of the fiscal year), leverage (total liabilities divided by the shareholders' equity), liquidity (balance sheet value of cash and cash equivalents divided by total assets), and the level of investment (capital expenditures divided by total assets). Variables to indicate the survey year are also included as a year fixed effect.
To verify the robustness of the findings, the study used two-stage least squares regression analyses to check on whether well-performing firms tend to improve their corporate governance practices.

Collaboration
This study was undertaken by ICD Philippines with the assistance of ADB using annual data pertaining to years 2014, 2015, and 2016. Statistical, methodological support and peer review was provided by the University of Asia and the Pacific. 14 8. overall FindinGS ACGS = ASEAN Corporate Governance Scorecard, ROE = return on equity.
Notes: (a) This table presents the descriptive statistics of the sample. It shows the means and standard deviations of the variables given in columns 3-10, which are provided specifically for each of the 3 years included in the study, i.e., 2014, 2015, and 2016, and for all years. (b) The "All years" figures represent the means and standard deviations of the variables in columns 3-10, and are each the average for the 3-year period for that specific column. (c) The descriptive results showed that the average Tobin's Q ratio (column 3) for each year and all years were consistently above 1.0. Theoretically, Tobin's Q ratio with a value above 1.0 indicates that the firm's equity market value is worth more than its equity book value.  However, the steady rise of the market ended in the middle of 2015, followed by a continuous downtrend which ended with the stock market down by 3.9% upon its closing. In 2016, the Philippine stock market faced a volatile year with its rise attributed to positive economic outlook and infrastructure investment by the new Philippine administration, and its decline attributed to fears surrounding the US Federal Government rate hike, falling oil prices, and the incumbent US administration's tirade against international institutions in industrialized countries. By the end of 2016, the market was down by 1.6%.
As the overall sentiment in the stock market directly affects the share price of individual companies, it would have, by extension, also affected their Tobin's Q ratio. This would account for the decreasing Tobin's Q ratio averages over the 2014 to 2016 period. In this case, the improvement of ACGS practices might have been nullified by the decline in stock market performance. The same explanation would apply for the fluctuations in the market capitalization of individual companies over the same period.
Average firm size did not show as much year-to-year variation. On the other hand, values of mean leverage showed that companies had more liabilities than their shareholders' equity, but it showed a rather stable increasing trend during the covered period. The patterns of the values concerning liquidity and level of investment also exhibited a fluctuating pattern similar to the other variables.
to measure the relationship between corporate governance and the market capitalization of publicly listed companies in the philippines.
(1) Notes: (a) Market capitalization is the market value of shareholders' equity (in billions and in Philippine pesos). Control variables included size, leverage, liquidity, and investments. Size is the log of total assets. Leverage denotes the debt ratio (total liabilities divided by the shareholders' equity). Liquidity is the ratio of cash and cash equivalents to assets while the investments variable is the ratio of capital expenditures to total assets. Panel data is strongly balanced. Year 2014 is the reference year; thus, it is omitted in the results. (b) *** indicates significant @99% confidence level.
Source: From the results of the regression analysis done by the researchers from University of Asia and the Pacific.
The results as shown in Table 2 showed that the ACGS score has a positive and highly significant effect on the market capitalization, after controlling for time-fixed-effects and firm-specific differences such as size, leverage, liquidity, and level of investments. The results of this study suggest that an increase in the ACGS score by one unit will also increase the predicted market capitalization (in billions) by 3.032 when all other things remain constant. This likely suggests that the efforts and resources put in by the corporations in increasing their ACGS scores are paid off with an increased market capitalization.
to measure the relationship between corporate governance and the market valuation of publicly listed companies in the philippines. (2) (3) Notes: (a) The dependent variable in model 2 is Tobin's Q ratio, while the dependent variable in model 3 is ACGS scores. The Tobin's Q ratio was used as proxy for the market valuation. Models 2 and 3 both employed regression with PCSE so that estimations of results are robust to data disturbances. (b) Tobin's Q ratio in this study is defined as the market value of equity divided by the book value of equity.
Controlling variables include size, leverage, liquidity, level of investments, and time-effects. For the timeeffects, reference year is 2014 that is why Stata omitted the results for 2014. (c) *** indicates significant @99% confidence level, ** indicates significant @ 95% confidence level.
Source: From the results of the regression analysis done by the researchers from University of Asia and the Pacific. Table 3 shows that in model 2, Hausman specification test and Breusch and Pagan LM test both suggested the use of Random-effects GLS panel regression, yet model 2 suffers from the presence of heteroskedasticity, autocorrelation, and cross-sectional dependence. Thus, the PCSE was again employed with time dummies considering that upon testing for time-effects, results suggested that controlling for time-effects is needed. For model 3, Hausman test suggested the use of fixed-effects over random-effects. However, just like the case of model 2, model 3 also suffered the same data disturbances and the need to control for time-fixedeffects. Hence, model 3 also employed regression with PCSE and with time dummies. On one hand, the Prob>chi2 of models 2 and 3 were both less than 0.05, which suggest that the models are acceptable and that all coefficients in the models are different from zero.
The results for model 2 showed that there is a positive and highly significant relationship between ACGS score as a proxy for quality of corporate governance practices and the market valuation as measured by Tobin's Q ratio after controlling for time-effects and the firm-specific differences such as size, leverage, liquidity, and level of investments. The results demonstrate that an increase in ACGS score by one unit will also increase the Tobin's Q ratio by 0.027, keeping everything else constant.
This suggests that efforts and resources put in by the corporations in increasing their ACGS scores are matched by an increase in the predicted value of their Tobin's Q ratio. In the same way, results for model 3 also showed that there is a positive and highly significant relationship between Tobin's Q ratio and ACGS score after controlling for time-effects and firm-specific differences. Results in models 2 and 3 suggest that increasing the ACGS score will increase Tobin's Q ratio, and vice versa.
to measure the relationship between corporate governance and the profitability of publicly listed companies in the philippines.
(4) Notes: (a) The dependent variable in this model is return on equity as a measure of profitability, which is measured as the firm's net income divided by the firm's equity at book value. Controlling variables include size, leverage, liquidity, and investments.
Source: From the results of the regression analysis done by the researchers from University of Asia and the Pacific.
Results showed that the coefficient of ACGS score is positive and highly significant, although the absolute increase in value could be considered minimal. Nonetheless, the results imply that increasing the quality of corporate governance practices would result in an increase (although minimal) on the return on equity (ROE) as a measure of profitability after controlling for firmspecific differences. The results point out that an increase in ACGS score by one unit would increase the ROE by 0.003 when all other things remain constant.
Again, results of models 1 to 4 showed that companies that enhance efforts and resources to raise the quality of their corporate governance-as reflected in increasing ACGS scores-would experience a positive impact on their market capitalization, market valuation, and profitability, after controlling for firm-specific differences and time-effects, if needed.
In Figure 2, the distances between data points are narrow and more compact near the corporate governance score threshold. As the ACGS score increases, the points become more dispersed and would show corresponding increase and growth in the market capitalization. It is also probable that companies with large market capitalization would have resources to effectively implement better corporate governance practices, hence their correlation. (b) In a number of instances, those with a high ACGS score also have a high market capitalization (expressed in billion pesos). (c) However, there are also cases where companies have a high ACGS score but their market capitalization is not commensurately high.
Source: Data was obtained from the published reports of PLCs uploaded in the online database of the Philippine Stock Exchange and the ACGS assessments done by ICD Philippines.

Figure 2: aSean Corporate Governance Scorecard Scores versus market Capitalization (₱ billion)
In Figure 3, the Tobin's Q ratios of firms with ACGS scores on the higher end of the spectrum exhibit similarly low values as firms with lower ACGS scores. 7 The continuous decline of the Philippine stock market performance in 2015 and 2016 may have contributed to the lower than expected values of Tobin's Q ratio and the absence of a distinctive upward trend between the two variables. Another probable explanation is the lack of awareness and appreciation by investors of the ACGS scores or governance practices of companies, as well as the influence of these factors on firm valuation. It should be noted the ACGS scores, and the quality of governance practices they represent, are still not openly disclosed or publicized for individual PLCs. 7 Based on the results of model 2, an increase by one unit of ACGS score will increase the Tobin's Q ratio by 0.027, if all other factors remain constant, with a confidence level of 99%.

ACGS = ASEAN Corporate Governance Scorecard, ICD = Institute of Corporate Directors, PLC = publicly listed company
Note: This figure also shows a scatter plot where some companies have a high ACGS score but a low Tobin's Q ratio. At same time, there are companies which have a low ACGS score but a high Tobin's Q ratio.
Source: Data was obtained from the published reports of PLCs uploaded in the online database of the Philippine Stock Exchange and the ACGS assessments done by ICD Philippines. Removing the negative outlier from Figure 4, the data points appear to be fairly dispersed from the regression line. 8 Using statistical correlation tests, the ACGS scores appear to have a weak linear correlation to the ROE of firms. The dispersion of data points also shows wide variances from the trend or regression. 8 Again, based on the results in Table 5, the correlation between ACGS score and ROE is considered to be positive, but a weak linear relationship with a correlation coefficient of 0.2993. Note: This figure shows a scatter plot of ACGS scores and ROE values of the sample publicly listed companies. One might find it difficult to infer on the trend considering that some companies had a negative ROE, but their ACGS score was higher than some other companies with a positive ROE. Nonetheless, most companies had a positive ROE.
Source: Data was obtained from the published reports of PLCs uploaded in the online database of the Philippine Stock Exchange and the ACGS assessments done by ICD Philippines.

ConCluSion
The Institute of Corporate Directors (ICD) defines corporate governance as "the system by which companies are directed and controlled by a board of directors, acting collegially." The corporate governance of ASEAN publicly listed companies (PLCs) is evaluated using the ASEAN Corporate Governance Scorecard (ACGS), a benchmarking tool based on international best practices.
The Philippines' performance in the ACGS steadily rose from its assessment in 2012 through 2016. After years of experience with the ACGS, ICD saw the need and opportunity to explore the impact of corporate governance practices on the financial performance and market perception of Philippine PLCs. Thus, the study sought to determine how and to what extent the quality of corporate governance practices, as measured by the ACGS, relate to the market capitalization, market valuation, and profitability of PLCs.
The study is intended to help resolve issues regarding the financial benefits of good corporate governance practices. Its results will inform board directors, compliance officers, and corporate secretaries of Philippine PLCs, as well as regulators, investors, and other stakeholders.
A review of literature identified past studies that attempted to establish the relationship between corporate governance and financial performance of a firm in both developed and emerging markets. Some of these studies used an overall corporate governance index to measure the overall corporate governance practices of companies. Other studies considered the relationship of specific aspects of corporate governance on firm performance. There are studies that provided evidence of the benefits of adopting good corporate governance practices. There are also studies that presented opposing conclusions on the relation between corporate governance practices and firm performance.
The methodology of this current study was modeled after that of Cheung et al. (2014). Descriptive statistics (i.e., mean and standard deviation) were computed for the independent, dependent, and control variables of companies in a sample of 73 PLCs and for each of the 3 years (2014, 2015, and 2016) covered by the study. Regression with panel-corrected standard errors (PCSE) was used to examine the relationship between the ACGS score and market capitalization, between the ACGS score and Tobin's Q ratio, and between the ACGS score and return on equity ratio.
The results of the study showed that for the group of PLCs included in the study, there is a positive and statistically significant relationship between (i) corporate governance and market capitalization, (ii) corporate governance and market valuation as measured by Tobin's Q ratio, and (iii) corporate governance and profitability as measured by return on equity. This means that as the quality of corporate governance practices improves, it is likely that firm market capitalization, market valuation, and profitability will increase as well.
The study indicates that increasing the efforts and resources devoted to improving the quality of corporate governance practices of a PLC would create positive and significant effects on its market capitalization, market valuation, and profitability. Thus, it is worthwhile for PLCs to work on raising the quality of their corporate governance practices and, in the process, improve their ACGS score. Regulations that go beyond compliance can help raise the bar on corporate governance in the country.
On the buy side of the market, institutional and other investors in the country must be afforded access to the results of the ACGS process so they can reward PLCs with high governance scores with appropriate premiums on their share price. (1) The rules and procedures governing the acquisition of corporate control in the capital markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse.
Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class. C. role of Stakeholders C.1 the rights of stakeholders that are established by law or through mutual agreements are to be respected.

Guiding reference
Does the company disclose a policy that : Stipulates the existence and scope of the company's efforts to address customers' welfare?
oeCd principle iv (a): The rights of stakeholders that are established by law or through mutual agreements are to be respected. In all OECD countries, the rights of stakeholders are established by law (e.g. labour, business, commercial and insolvency laws) or by contractual relations. Even in areas where stakeholder interests are not legislated, many firms make additional commitments to stakeholders, and concern over corporate reputation and corporate performance often requires the recognition of broader interests. (1)The financial and operating results of the company; (2)Company objectives, including ethics, environment, and other public policy commitments; (3) Major share ownership and voting rights, including group structures, intra-group relations, ownership data, beneficial ownership; (4)Remuneration policy for members of the board and key executives, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board; uK Code (June 2010): listing rules 9.8.6 R (for UK incorporated companies) and 9.8.7 R (for overseas incorporated companies) state that in the case of a company that has a Premium listing of equity shares, the following items must be included in its Annual Report and accounts: a statement of how the listed company has applied the Main Principles set out in the UK CG Code, in a manner that would enable shareholders to evaluate how the principles have been applied; a statement as to whether the listed company has complied throughout the accounting period with all relevant provisions set out in the UK CG Code; or not complied throughout the accounting period with all relevant provisions set out in the UK CG Code, and if so, setting out: (i) those provisions, if any, it has not complied with; (ii) in the case of provisions whose requirements are of a continuing nature, the period within which, if any, it did not comply with some or all of those provisions; and (iii) the company's reasons for noncompliance. An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.
Where the same audit firm is engaged for both audit and non-audit services?

D.5.2
Are the non-audit fees disclosed? oeCd principle v (d): External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.
iCGn 6.5 ethical standards (audit): The auditors should observe high-quality auditing and ethical standards. To limit the possible risk of possible conflicts of interest, non-audit services and fees paid to auditors for non-audit services should be both approved in advance by the audit committee and disclosed in the Annual Report. (1) Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures.
(2) Monitoring the effectiveness of the company's governance practices and making changes as needed.
(3) Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.
(4) Aligning key executive and board remuneration with the longer term interests of the company and its shareholders.
(5) Ensuring a formal and transparent board nomination and election process. (6) Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.
(7) Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards. The board has a key role in setting the ethical tone of a company, not only by its own actions, but also in appointing and overseeing key executives and consequently the management in general. High ethical standards are in the long term interests of the company as a means to make it credible and trustworthy, not only in day-to-day operations but also with respect to longer term commitments.
To make the objectives of the board clear and operational, many companies have found it useful to develop company codes of conduct based on, inter alia, professional standards and sometimes broader codes of behaviour. In order to exercise its duties of monitoring managerial performance, preventing conflicts of interest and balancing competing demands on the corporation, it is essential that the board is able to exercise objective judgement. In the first instance this will mean independence and objectivity with respect to management with important implications for the composition and structure of the board. Board independence in these circumstances usually requires that a sufficient number of board members will need to be independent of management. The ASX Code recommends at least a majority of independent directors, while the UK Code recommends at least half of the board, excluding the Chairman, be independent directors. The minimum of three independent directors is to ensure that companies with small boards have enough independent directors (note that stock exchange rules often require at least two independent directors).

E.2.5
Are the independent directors/commissioners independent of management and major/substantial shareholders?

oeCd principle vi (e):
In order to exercise its duties of monitoring managerial performance, preventing conflicts of interest and balancing competing demands on the corporation, it is essential that the board is able to exercise objective judgement. In the first instance this will mean independence and objectivity with respect to management with important implications for the composition and structure of the board. Board independence in these circumstances usually requires that a sufficient number of board members will need to be independent of management.

e.2 board structure Guiding reference
The variety of board structures, ownership patterns and practices in different countries will thus require different approaches to the issue of board objectivity. In many instances objectivity requires that a sufficient number of board members not be employed by the company or its affiliates and not be closely related to the company or its management through significant economic, family or other ties. This does not prevent shareholders from being board members. In others, independence from controlling shareholders or another controlling body will need to be emphasised, in particular if the ex-ante rights of minority shareholders are weak and opportunities to obtain redress are limited. This has led to both codes, and the law in some jurisdictions, to call for some board members to be independent of dominant shareholders, independence extending to not being their representative or having close business ties with them.

E.2.6
Does the company have a term limit of nine years or less for its independent directors/commissioners?
uK Code (June 2010): Non-executive directors should be appointed for specified terms subject to re-election and to statutory provisions relating to the removal of a director. Any term beyond six years for a non-executive director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the board and to succession for appointments to the board and to senior management, so as to maintain an appropriate balance of skills and experience within the company and on the board.

E.2.7
Has the company set a limit of five board seats that an individual independent/nonexecutive director/commissioner may hold simultaneously?
oeCd principle vi (e): (3) Board members should be able to commit themselves effectively to their responsibilities. Service on too many boards can interfere with the performance of board members. Companies may wish to consider whether multiple board memberships by the same person are compatible with effective board performance and disclose the information to shareholders. With respect to nomination of candidates, boards in many companies have established Nominating Committees to ensure proper compliance with established nomination procedures and to facilitate and coordinate the search for a balanced and qualified board. It is increasingly regarded as good practice in many countries for independent board members to have a key role on this committee. To further improve the selection process, the Principles also call for full disclosure of the experience and background of candidates for the board and the nomination process, which will allow an informed assessment of the abilities and suitability of each candidate.

oeCd principle vi (e):
(1) Boards should consider assigning a sufficient number of non-executive board members capable of exercising independent judgement to tasks where there is a potential for conflict of interest. Examples of such key responsibilities are ensuring the integrity of financial and non-financial reporting, the review of related party transactions, nomination of board members and key executives, and board remuneration. (2) When committees of the board are established, their mandate, composition and working procedures should be well defined and disclosed by the board.
While the use of committees may improve the work of the board they may also raise questions about the collective responsibility of the board and of World banK prinCiple 6 (VI.I.24) Does the board meet at least six times per year?
indo SCoreCard E.10. How many meetings were held in the past year? If the board met more than six times, the firm earns a 'Y' score. If four to six meetings, the firm was scored as 'fair', while less than four times was scored as 'N'.

E.3.3
Has each of the directors/commissioners attended at least 75% of all the board meetings held during the year?
oeCd principle vi (e): (3) Board members should be able to commit themselves effectively to their responsibilities.
Specific limitations may be less important than ensuring that members of the board enjoy legitimacy and confidence in the eyes of shareholders. Achieving legitimacy would also be facilitated by the publication of attendance records for individual board members (e.g. whether they have missed a significant number of meetings) and any other work undertaken on behalf of the board and the associated remuneration.

e.3 board processes
Guiding reference E.3.4 Does the company require a minimum quorum of at least 2/3 for board decisions?
World banK prinCiple 6 (VI.I.28) Is there a minimum quorum of at least 2/3 for board decisions to be valid? E.3.5 Did the non-executive directors/commissioners of the company meet separately at least once during the year without any executives present?
World banK prinCiple 6 (VI.E.1.6) Does the corporate governance framework requires or encourages boards to conduct executive sessions?
Access to information E.3.6 Are board papers for board of directors/commissioners meetings provided to the board at least five business days in advance of the board meeting?
oeCd principle vi: (F) In order to fulfil their responsibilities, board members should have access to accurate, relevant and timely information.
Board members require relevant information on a timely basis in order to support their decision-making. Non-executive board members do not typically have the same access to information as key managers within the company.
The contributions of non-executive board members to the company can be enhanced by providing access to certain key managers within the company such as, for example, the company secretary and the internal auditor, and recourse to independent external advice at the expense of the company. In order to fulfil their responsibilities, board members should ensure that they obtain accurate, relevant and timely information.
World banK prinCiple 6 (VI.F.2) Does such information need to be provided to the board at least five business days in advance of the board meeting? To further improve the selection process, the Principles also call for full disclosure of the experience and background of candidates for the board and the nomination process, which will allow an informed assessment of the abilities and suitability of each candidate.
E.3.10 Does the company disclose the process followed in appointing new directors/commissioners? oeCd principle vi (d): (5) Ensuring a formal and transparent board nomination and election process. These Principles promote an active role for shareholders in the nomination and election of board members. The board has an essential role to play in ensuring that this and other aspects of the nominations and election process are respected. First, while actual procedures for nomination may differ among countries, the board or a nomination committee has a special responsibility to make sure that established procedures are transparent and respected. Second, the board has a key role in identifying potential members for the board with the appropriate knowledge, competencies and expertise to complement the existing skills of the board and thereby improve its value-adding potential for the company. In several countries there are calls for an open search process extending to a broad range of people.

E.3.11
Are all the directors/commissioners subject to re-election at least once every three years?
iCGn: 2.9.1 Election of directors: Directors should be conscious of their accountability to shareholders, and many jurisdictions have mechanisms to ensure that this is in place on an on-going basis. There are some markets however where such accountability is less apparent and in these each director should stand for election on an annual basis. Elsewhere directors should stand for election at least once every three years, though they should face evaluation more frequently.
World banK prinCiple 6 (VI.I.18) Can the re-election of board members be staggered over time? (Staggered boards are those where only a part of the board is re-elected at each election, e.g. only 1/3 of directors are re-elected every year.)

Remuneration Matters
E.3.12 Does the company disclose its remuneration (fees, allowances, benefit-in-kind and other emoluments) policy/practices (i.e. the use of short term and long term incentives and performance measures) for its executive directors and CEO?
oeCd principle vi (d): (4) Aligning key executive and board remuneration with the longer term interests of the company and its shareholders.
In an increasing number of countries it is regarded as good practice for boards to develop and disclose a remuneration policy statement covering board members and key executives. Such policy statements specify the relationship between remuneration and performance, and include measurable standards that emphasise the longer run interests of the company over short term considerations. Policy statements generally tend to set conditions for payments to board members for extra-board activities, such as consulting.
They also often specify terms to be observed by board members and key executives about holding and trading the stock of the company, and the procedures to be followed in granting and re-pricing of options. In some countries, policy also covers the payments to be made when terminating the contract of an executive.

E.3.13
Is there disclosure of the fee structure for non-executive directors/commissioners?
uK Code (June 2010) D.1.3 Levels of remuneration for non-executive directors should reflect the time commitment and responsibilities of the role.
Disclosure of fee structure for non-executive directors allows shareholders to assess if these directors are remunerated in an appropriate manner, for example, whether they are paid for taking on additional responsibilities and contributions, such as chairing committees.
E.3.14 Do the shareholders or the Board of Directors approve the remuneration of the executive directors and/or the senior executives?

oeCd principle vi. (d.4):
The Board should fulfil certain key functions including aligning key executive and board remuneration with the longer term interests of the company and its shareholders.  aSX Code Box 8.2: Guidelines for non-executive director remuneration Companies may find it useful to consider the following when considering nonexecutive director remuneration: (1) Non-executive directors should normally be remunerated by way of fees, in the form of cash, noncash benefits, superannuation contributions or salary sacrifice into equity; they should not normally participate in schemes designed for the remuneration of executives.
(2) Non-executive directors should not receive options or bonus payments.
(3) Non-executive directors should not be provided with retirement benefits other than superannuation.

E.3.16
Does the company have a separate internal audit function?
oeCd principle vi (d) (7) Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
Ensuring the integrity of the essential reporting and monitoring systems will require the board to set and enforce clear lines of responsibility and accountability throughout the organisation. The board will also need to ensure that there is appropriate oversight by senior management. One way of doing this is through an internal audit system directly reporting to the board.

e.3 board processes
Guiding reference E.3.17 Is the head of internal audit identified or, if outsourced, is the name of the external firm disclosed?
Companies often disclose that they have an internal audit but, in practice, it is not uncommon for it to exist more in form than in substance. For example, the in-house internal audit may be assigned to someone with other operational responsibilities. As internal audit is unregulated, unlike external audit, there are firms providing outsourced internal audit services which are not properly qualified to do so. Making the identity of the head of internal audit or the external service provider public would provide some level of safeguard that the internal audit is substantive.

E.3.18
Does the appointment and removal of the internal auditor require the approval of the Audit Committee?
oeCd principle vi (d) (7): In some jurisdictions it is considered good practice for the internal auditors to report to an independent Audit Committee of the board or an equivalent body which is also responsible for managing the relationship with the external auditor, thereby allowing a coordinated response by the board.
World banK prinCiple 6 (VI.D.7.9) Does the internal auditors have direct and unfettered access to the board of directors and its independent Audit Committee?
aSX principles on CG "…companies should consider a second reporting line from the internal audit function to the board or relevant committee." Under the ASX Principles it is also recommended that the Audit Committee have access to internal audit without the presence of management, and that "the audit committee should recommend to the board the appointment and dismissal of a chief internal audit executive."

E.3.19
Does the company disclose the internal control procedures/risk management systems it has in place?
oeCd principle 6 (vi) (d) (7): Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards. oeCd principle 6 (vi) (d): (7) Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
In some jurisdictions it is considered good practice for the internal auditors to report to an independent audit committee of the board or an equivalent body which is also responsible for managing the relationship with the external auditor, thereby allowing a coordinated response by the board. It should also be regarded as good practice for this committee, or equivalent body, to review and report to the board the most critical accounting policies which are the basis for financial reports. However, the board should retain final responsibility for ensuring the integrity of the reporting systems. Some countries have provided for the chair of the board to report on the internal control process.

e.3 board processes
Guiding reference E.3.22 Does the Annual Report contain a statement from the board of directors/commissioners or Audit Committee commenting on the adequacy of the company's internal controls/risk management systems?
oeCd principle 6 (vi) (d): (7) Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
In some jurisdictions it is considered good practice for the internal auditors to report to an independent audit committee of the board or an equivalent body which is also responsible for managing the relationship with the external auditor, thereby allowing a coordinated response by the board. It should also be regarded as good practice for this committee, or equivalent body, to review and report to the board the most critical accounting policies which are the basis for financial reports. However, the board should retain final responsibility for ensuring the integrity of the reporting systems. Some countries have provided for the chair of the board to report on the internal control process. (3) Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.
In two tier board systems the supervisory board is also responsible for appointing the management board which will normally comprise most of the key executives. (1) elevate risk oversight to the highest level in the company; (2) strengthen the quality of risk management; (3) inculcate a risk culture and riskmanagement environment to mitigate and manage risks effectively across the organization; (4) establish a platform for continuous assessment of risks in light of the changing internal and external environments; Guiding reference D.1.1(P) Did the company receive a "qualified opinion" in its external audit report?
oeCd principle v: disclosure and transparency (B) Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and nonfinancial disclosures.
(C) An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.
(D) External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.
iCGn 6.2 annual audit The annual audit carried out on behalf of shareholders is an essential part of the checks and balances required at a company. It should provide an independent and objective opinion that the financial statements fairly represent the financial position and performance of the company in all material respects, give a true and fair view of the affairs of the company and are in compliance with applicable laws and regulations.
iCGn 7.3 affirmation of financial statements The board of directors and the appropriate officers of the company should affirm at least annually the accuracy of the company's financial statements or financial accounts. D.1.2(P) Did the company receive an "adverse opinion" in its external audit report? D.1.3(P) Did the company receive a "disclaimer opinion" in its external audit report?
D.1.4(P) Has the company in the past year revised its financial statements for reasons other than changes in accounting policies? oeCd principle vi (d): (7) Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
Companies are also well advised to set up internal programmes and procedures to promote compliance with applicable laws, regulations and standards, including statutes to criminalise bribery of foreign officials that are required to be enacted by the OECD Anti-bribery Convention and measures designed to control other forms of bribery and corruption. Moreover, compliance must also relate to other laws and regulations such as those covering securities, competition and work and safety conditions. Such compliance programmes will also underpin the company's ethical code.
E.1.2(P) Have there been any instances where nonexecutive directors/commissioner have resigned and raised any issues of governancerelated concerns?
uK Code (June 2010) A.4.3 Where directors have concerns which cannot be resolved about the running of the company or a proposed action, they should ensure that their concerns are recorded in the board minutes. On resignation, a nonexecutive director should provide a written statement to the chairman, for circulation to the board, if they have any such concerns.

e.2 board appraisal
Guiding reference E.2.1(P) Does the Company have any independent directors/commissioners who have served for more than nine years or two terms (whichever is higher) in the same capacity?
oeCd principle v: (C) An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.
Examples of other provisions to underpin auditor independence include, a total ban or severe limitation on the nature of non-audit work which can be undertaken by an auditor for their audit client, mandatory rotation of auditors (either partners or in some cases the audit partnership), a temporary ban on the employment of an ex-auditor by the audited company and prohibiting auditors or their dependents from having a financial stake or management role in the companies they audit.
E.2.2(P) Did the company fail to identify who are the independent director(s)/commissioner(s)?
iCGn 2.4 Composition and structure of the board iCGn 2.4.1 Skills and experience iCGn 2.4.3 independence E.2.3(P) Does the company have any independent directors/non-executive/commissioners who serve on a total of more than five boards of publicly-listed companies?
oeCd principle vi (e): (3) Board members should be able to commit themselves effectively to their responsibilities.
Service on too many boards can interfere with the performance of board members. Companies may wish to consider whether multiple board memberships by the same person are compatible with effective board performance and disclose the information to shareholders.
e.3 external audit Guiding reference E.3.1(P) Are any of the directors or senior management a former employee or partner of the current external auditor (in the past 2 years)?
oeCd principle v: (C) An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.

annexes e.3 external audit Guiding reference
Examples of other provisions to underpin auditor independence include, a total ban or severe limitation on the nature of non-audit work which can be undertaken by an auditor for their audit client, mandatory rotation of auditors (either partners or in some cases the audit partnership), a temporary ban on the employment of an ex-auditor by the audited company and prohibiting auditors or their dependents from having a financial stake or management role in the companies they audit. This study examines publicly listed companies in the Philippines to determine the relationship between the quality of corporate governance practices and company performance. It concludes that as a company's corporate governance practices improve, there is likely to be positive and signifi cant impacts on its market capitalization, market valuation, and profi tability. The study was jointly conducted by the Asian Development Bank, the Institute of Corporate Directors, and the University of Asia and the Pacifi c.

About the Asian Development Bank
ADB is committed to achieving a prosperous inclusive resilient and sustainable Asia and the Pacifi c while sustaining its e orts to eradicate extreme poverty Established in it is owned by members -from the region Its main instruments for helping its developing member countries are policy dialogue loans equity investments guarantees grants and technical assistance