As part of globalization, many developed and developing countries focused on
increasing capital mobility and ensuring sustainable economic growth. With this
direction, capital investors should be concerned with the governance issues involving
how the company is managed and controlled towards achieving its objectives.
However, the importance of governance has emerged only after the numerous
corporate scandals witnessed globally during the past years.
For instance, United States follows the “Anglo-American” Corporate Governance
System which is governed through federal securities laws and regulations enforced by
SEC, NYSE and NASDAQ. The effectiveness of this system has been heavily criticized
due to its massive failure in preventing Enron, WorldCom, and Tyco corporate
misconduct. Details of these scandals evidenced that the optimal amount of
independence and oversight was not adequately practiced over the boards of U.S.
companies. Thus, in 2002, SEC enacted the Sarbanes-Oxley Act (SOX) intended to
protect investor’s interests by imposing penalties for violating the provisions of SOX.
The act mandated changes in corporate governance principles related to executive
compensation, shareholders oversight, board independence and accountability. This
reformation has strengthen the corporate internal controls, however its implementation
