Politics, Economic Crises and Corporate Governance Reforms: Regulatory Capture in Malaysia

Following the 1997 Asian financial crisis, the regulatory system involving governance of the corporate sector was subjected to major legislative and institutional reforms, primarily in response to exposures of serious cases of corruption and abuse in the financial sector by well-connected businesspeople. However, the 2008 global financial crisis indicated continued occurrence of irresponsible forms of corporate development and practices, underscoring structural weaknesses within the regulatory system in spite of these reforms. This article argues that the reforms that had been introduced ignored how state-business nexuses shape the way firms operate, a core reason for the persistence of unproductive and speculative forms of corporate development, grand corruption and cronyism. Utilising Malaysia as a case study, this article indicates that institutional reforms involving devolution of power to regulatory institutions are imperative to provide them with the autonomy to objectively institute prudential controls and indict errant firms that violate legislation overseeing corporate activities.