Was there a corporate governance failure in Asian financial crisis?

Till these days, I am still not very sure whether the largest problem in Asian financial crisis is corporate governance failure. If the goal of corporate governance is to maximize shareholders' profits, then I think we had very good corporate governance back then.  The losers in Asian financial crisis were creditors, depositors, and taxpayers, none of them are whom corporate governance is supposed to protect. So it was more a government failure, as it is the government's job to protect taxpayers and creditors.

Let’s not confuse between corporate governance and corporate operation. For example, below I cite some statement by ADB.  They seem to be blaming everything on “corporate governance”, but they are actually talking about financing decisions, which is about how a corporation is operated.

“The high level of nonperforming loans among banks and the over-reliance of the corporate sector on them reflect both weak governance and the lack of alternative financing sources to banks.”

Well, how could choice of capital structure be directly related to corporate governance?? We can call it a bad finance decision in hindsight, but  at that point in time, when short-term debt was cheap, it was absolutely in the interest of shareholders to choose such capital structure.  Mismatch of maturity and currency structure in borrowing was key in bringing down Asian corporations. But this is about risk management, not corporate governance.

Cronyism lending is certainly bad. But from the perspective of shareholder in the borrower firm, it is good corporate governance that the firm borrows from connected banks at favorable terms, because it maximizes the profit of shareholders in the borrower firm, although to less extent for minority shareholders.

Even shareholders in the bank benefit, given that depositors, and ultimately taxpayers (when government bails out failed banks)  bear the cost of banking failure, while shareholders may well enjoy higher return had the banks not failed.

If we establish that corporate governance is about the interest of shareholders, then Asian financial crisis is a state failure, not a market failure created by the corporate sector.  The reason why minority shareholders are willing to participate is exactly that they expect they can still extract rents from other parties even after expropriated by the majority shareholders. Thus the greatest problem is transfer of wealth from consumers, potential competitors etc to the listed companies.  And even if the corporate governance is perfect, this benefit transfer will continue, because it is to the interest of shareholders to use political connection to gain benefit for the firm. When corporate governance is weak,  majority shareholders get larger share of the pie, but minority shareholder also benefit, though to lesser extent, otherwise they wouldn’t  have participated in the first place.

If anything about corporate governance has to be done at all, it is about the corporate governance  of banks and financial institutions, not the non-financial corporate sectors. I however won’t call this corporate governance reform, because such reform is about better protection of depositors and taxpayers, who are not shareholders.

For the corporate sector, the problem is  more about the risk management technique. I am sure controlling shareholders have best incentive to adopt good risk management, if they know that corporate failure may trigger nation-wide crisis and no one (including themselves) can escape. I still have strong belief that no incumbent would try to sink their own boats even when they have their own life boats. You still lose a lot, although less than the costs incurred by minority shareholders. It is common knowledge that, when the economy is in turmoil, political powers are more likely to change hands, and no incumbent will like to see it happens, let alone creating it on purpose. The crisis was unexpected for them too.