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Without an effective policy response, the number of undercapitalised and
underperforming firms will likely rise and remain high, while an
increasing amount of productive resources will be tied up in non-viable
companies, dragging down investment and economic growth, according to a
new OECD report.
The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis
says that substantial financial resources will be needed for investment
both to support the recovery from the COVID-19 crisis and to further
strengthen resilience to possible future shocks. Strengthening corporate
governance policies and frameworks will help both existing and new
companies access the capital they need.
“Good corporate governance and well-functioning capital markets play a
crucial role in supporting the recovery of our economies coming out of
the COVID-19 crisis,” OECD Secretary-General Mathias Cormann said,
launching the report in Rome with Italy’s Minister of Economy and
Finance, Daniele Franco. “They also help to make the business sector
more dynamic, competitive and resilient to possible future shocks,
including through more effective management of environmental, social and
governance risks. The global reach and review of the G20/OECD
Principles of Corporate Governance will be important in meeting these
objectives.”
The bond market continued to be a significant source of capital for
non-financial companies following the outbreak of the crisis, according
to the report. In 2020, non-financial companies issued a historical
amount of USD 2.9 trillion of corporate bond debt. As a result, the
volume of outstanding corporate bond debt reached an all-time high in
real terms of almost USD 15 trillion at the end of 2020.
The quality of the outstanding stock of corporate debt has been
falling. Between 2018 and 2020, the portion of BBB rated bonds – the
lowest investment grade rating – accounted for 52% of all investment
grade issuance. Between 2000 and 2007, that share was just 39%.
Globally, debt has also accumulated mainly in businesses with lower debt
servicing capacity.
While the stock market provided record amounts of capital money to
established companies in 2020, it has not provided sufficient support to
new companies. Since 2005, more than 30,000 companies have delisted
from stock markets globally, equivalent to 75% of all listed companies
today. These delistings have not been matched by new listings, leading
to a major reduction of publicly listed companies. As a result,
significantly fewer companies are using public equity markets and a
large portion of the money raised in 2020 went to fewer and larger
companies.
A strong corporate governance framework is essential for a
well-functioning capital market. To tackle challenges posed by the
crisis, the report highlights four priorities for policy makers:
The Corporate Governance Factbook, also released today, highlights the extent to which the G20/OECD Principles of Corporate Governance influence the development of frameworks globally. For example, since the Principles were last updated in 2015, 90% of 50 jurisdictions, including all OECD, G20 and Financial Stability Board members, have amended either their company law or securities law, or both.