(Nasha Anantchotikul, Roy Kouwenberg, Visit Phunnarungsi)

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(Nasha Anantchotikul, Roy Kouwenberg, Visit Phunnarungsi) Discussion of Do Firms Decouple Corporate Governance Policy and Practice? (Nasha Anantchotikul, Roy Kouwenberg, Visit Phunnarungsi)

Overview Motivation Summary of findings Some suggestions Enjoyed reading the paper!

Motivation Sometimes governance only looks good on paper Credible premise Law and finance literature provides evidence on the importance of rule of law in addition to legal protections of shareholders in countries with weak legal regimes US evidence links weak governance to accounting restatements and fraud in the US

This paper This paper takes it to the firm (micro) level and asks whether firms with sound governance rules in place violate listing requirements and laws The authors also distinguish firms that have sound governance from firms that use ‘cheap talk’ The empirics bring forth new Thai company-level data on governance

Some questions/suggestions Average number / presence of violations Does the SET data contain information about the gravity of the violation Accounting fraud: tests currently look at rules and procedures regarding financial statements and qualified/adverse auditor opinion The reputation of the auditing firm used could be of significance. Firms that pick a less reputed auditor may be ‘talk only’ about their stance on governance quality.

Some questions/suggestions Insider trading? Do we have data on the extent of insider trading Likelihood of being sued? Do we know if a shareholder suit followed SET’s disclosure of violations (those could be thought of as the graver instances of governance failure) Could symbolic governance rules be implemented on paper may to provide some protection from a shareholder lawsuit

Some questions/suggestions Does CEO ownership interact with the observed patterns – individual managerial self-interest could partly compensate for governance failures It would seem that implementation of governance rules would also be affected by whether the firm is closely held (e.g. has a large controlling owner/family owner) In an extension, it may be interesting to model the cheap talk behavior of firms that only attach symbolic meaning to governance standards

Conclusions Enjoyed reading the paper! Interesting new evidence from Thailand Governance policies contribute to fewer subsequent violation of listing rules and laws However, a small fraction of firms “cheap talk”