Foreign Ownership, Listed Status and the Financial System in East Asia: Evidence from Thailand and Malaysia

Existing studies on the financial system in East Asia have emphasized its excessive debt financing, the lack of a bond market and its limited function on corporate governance. Other apparent facts, such as the average low debt ratio, the existence of large but unlisted firms, and the significance of foreign firms in its economy are generally ignored. Based on a uniquely compiled database for the top 1000 firms in Thailand and Malaysia, we examined the distributional feature of listed status and foreign ownership, and then re-estimated the determinants of the capital structures. We confirmed basic facts, such as the fact that unlisted firms occupy a large portion in the distribution, and that the debt financing of major firms is relatively inactive. We also found the significance of foreign ownership and its negative relationship with debt financing and ‘going public’. Finally, we found that certain kinds of foreign firms tend to keep large retained earnings and non-bank debt, suggesting their deep reliance on self-financing and internal capital markets. The characteristics of corporate finance in East Asia can be explained in part by distributional features on listing status and foreign ownership. Our findings raised questions about the conventional view of the current policy framework which emphasized on the shift from financial intermediation to the capital and bond markets.