Skip to main content

Corporate Governance and Stock Market of Bangladesh

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.

Comments

Popular posts from this blog

Entry Strategy: Bangladesh Digital Signature Industry

Digital Signature electronically authenticates the author of any document. It encrypts documents with digital codes which is almost impossible to duplicate. For example, a CEO can provide approval to any project through email with digital signature. Digital Signature ensures that the email is not altered in the way and the CEO cannot deny his approval. Digital Signature Industry of Bangladesh Digital Signatures are provided by Certifying Authorities (CA). As Bangladesh Economy is growing and getting digitized, need of digital security is also increasing. Here is the current situation. 2011: Digital signature is controlled by Controller of Certifying Authorities(CCA) that was established in 2011 . National Information & Communication Technology Policy- 2009 provides directions to introduce Digital Signature earlier. It is regulated by Information and Communication Technology (Amended) Act, 2006. 66% vs. 6 : A research revealed that internet adoption in business will be

Private Universities trend in Bangladesh

The initiative of establishing Private universities in Bangladesh took place in 1980 but due to some reasons i.e. political turmoil it took a decade to be in functioning in 1992. A proper guideline along with all legal rules and regulation established to facilitate the higher education. Present status of public and private universities: Total 37 public universities and 85 private universities are listed in UGC website. UGC declared the name and address of 78 universities where students can enroll themselves and rest 7 universities are running their operation under certain circumstances of court order.

Impact of Corporate Governance on Bangladesh Stock Market - Survey Findings

As my graduation internship report, I did a research to find out whether the market price of equities is sensitive to corporate governance or not. If the investors rely on fundamental analysis then corporate governance should affect equities’ price. A set of declarations and their impact on equities price were surveyed among a sample of 100 investors. This research didn’t focus on degree of impact of corporate governance on equities price. They survey findings are illustrated below. Trading Experience 51% of the respondents stated that they started investing in stock market less than one year ago. On the other hand 32% started between 1 to 3 year ago and 17% started more than 3 years ago. That shows that last year there was huge interest in investing in stock market. Average Investment Average investment of the respondents is 445,760.50 and mode value is 200,000. These indicate tight portfolio of most of the investors. Tight portfolio is believed to have a more risk propensity as inves