## Stronger Emerging Market Corporate Governance Enhances Financial Resilience

_IMF News, September 29, 2016_

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**Canonical URL:** [Stronger Emerging Market Corporate Governance Enhances Financial Resilience](https://www.imf.org/en/news/articles/2016/09/27/am16gfsrch3emergingmarkets)

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## Bibliographic details
- Published: September 29, 2016

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### Overview
- Publication date: September 29, 2016
- Main message: Stronger corporate governance and investor protection in emerging market economies can enhance resilience to global financial shocks and strengthen corporate balance sheets.
- Scope: Findings presented as part of research for the Global Financial Stability Report.

### Key findings
- Corporate governance and investor protection have generally improved in emerging market economies over the past two decades.
- Improvements in governance have helped bolster the resilience of emerging market financial systems.
- Corporate governance improvements:
  - Make emerging markets more resilient to financial downturns.
  - Foster deeper and more liquid capital markets, improving shock absorption.
  - Enhance stock market efficiency, making equity prices less sensitive to external shocks and less prone to crashes.
- Poorly governed firms experienced sharper stock price declines during financial market turmoil (for example, around the reaction to the U.K.’s “Brexit” vote).
- Moving from the lower to the upper end of the firm-level governance index reduces the impact of global shocks by about 50 percent for emerging market firms, on average.
- Better-governed firms typically display:
  - Lower short-term debt ratios.
  - Lower default probabilities.
  - Ability to borrow at longer maturities.

### Firm-level governance index and cross-country evidence
- The IMF created a new firm-level governance index for the analysis.
- Using this index, the IMF found that emerging market firms outside of Latin America and Asia show the largest improvements since 2008.
- At the country level, indices compiled by other institutions suggest that, in most emerging market economies, investor protection, property rights enforcement, disclosure rules, and auditing and reporting standards could be enhanced.

### Policy recommendations and priorities
- Continue reforms of legal, regulatory, and institutional frameworks to foster effectiveness and enforceability of corporate governance regimes.
- Bolster the rights of all investors, in particular minority shareholders.
- Bring disclosure requirements fully in line with international best practice.
- Promote greater board independence.
- Emphasize enforcement, transparency, and the rights of all investors as key elements of effective corporate governance.

### Research and publication notes
- The analysis is part of the IMF’s Global Financial Stability Report research.
- The IMF will release further research from the Global Financial Stability Report on October 5.

*Source: IMF News — "Stronger Emerging Market Corporate Governance Enhances Financial Resilience" (September 29, 2016).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Policy](https://www.imf.org/en/news/search)
- [Read the report](http://www.imf.org/external/pubs/ft/gfsr/2016/02/index.htm)
- [Read more: global outlook](http://www.imf.org/external/pubs/ft/weo/2016/02/index.htm)
- [Slowdown in emerging markets](http://www.imf.org/external/pubs/ft/fandd/2016/09/huidrom.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/09/27/am16gfsrch3emergingmarkets_