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THE RELATIONSHIP OF COMPLIANCE WITH THE PHILIPPINE STOCK EXCHANGE

CORPORATE GOVERNANCE GUIDEBOOK AND RETURN ON EQUITY

OF SELECTED PUBLICLY LISTED COMPANIES IN THE PHILIPPINES

FOR THE REPORTING YEARS 2012 AND 2013

A Thesis Presented to the

UST-AMV College of Accountancy

University of Santo Tomas

In Partial Fulfillment

Of the Requirements for the Degree of

Bachelor of Science in Accounting

By

Group 4: Section 5A10

Ricka Abigael Dumelod, Mark James Tayson, Marc Exequiel Teodoro

Dyan Merz Tolentino, Rhona Carla Torres

May 2015
Acknowledgment

This thesis has been a long journey for the researchers, and it would not have been

accomplished successfully without the help of all who lent their hand in this endeavor.

First and foremost, the researchers would like to thank God Almighty for providing the

strength and the will to continue despite the hurdles and shortcomings encountered.

The researchers also extend their deepest gratitude to their advisers, for sharing their

time, expertise and guidance throughout the duration of the study:

To Dr. Mary Rosaleen Agaton, thesis adviser, for teaching and reminding the

researchers what they needed to accomplish for the completion of the thesis;

To Dr. Luciana Urquiola, English adviser, for giving useful information, advice and

ideas for the improvement of the study;

To Atty. Angela Francesca Din, technical adviser, for the constant morale boost

and choosing to stay as the technical aviser of the researchers despite the inconvenience

it entails; and

To Ms. Mary Jane Castilla, thesis statistician, for teaching the researchers

procedures needed to conduct this study, for helping the researchers understand the

complex statistical results, and most importantly, for the patience, understanding, and

accommodation even beyond the designated consultation time.

Special thanks to Mr. Luis Chua and Mr. Hilario Tan for lending their expertise regarding

technical accounting matters, and for giving insight that has greatly assisted the theoretical

foundation of the study. Gratitude is also extended to AEV and PDLT for taking time to respond
to the interview, which served as corroborating information in formulating the conclusion of the

study.

Thanks also to the panelists, for giving this thesis an opportunity to be reviewed and

improved further.

To everyone not mentioned but has contributed directly or indirectly in the completion of

the study, thank you very much for making this possible.

This thesis is a fruit of persistence and hardwork, and having the opportunity to experience

it is heart-warming, mind-nurturing, and soul-enriching. To God be the glory!


University of Santo Tomas
Alfredo M. Velayo College of Accountancy

CERTIFICATE OF ORIGINALITY

We, hereby declare that this submission is our own work and that, to the best of our

knowledge and belief, it contains no material previously published or written by another person

nor material which to a substantial extent has been accepted for the award of any other degree or

diploma of a university or other institute of higher learning, except where due acknowledgement

is made in the text.

We also declare that the intellectual content of this thesis/dissertation is the product

of our work, even though we may have received the assistance from others on style, presentation

and language expression.

_________________________ _________________________

Ricka Abigael R. Dumelod Marc Exequiel Teodoro

_________________________ _________________________
Mark James C. Tayson Dyan Merz S. Tolentino

_________________________
Rhona Carla M. Torres

Noted:

__________________________________________
Dr. Mary Rosaleen Agaton

_________________________
Date
University of Santo Tomas
Alfredo M. Velayo College of Accountancy

APPROVAL SHEET
The thesis entitled

THE RELATIONSHIP OF COMPLIANCE WITH THE PHILIPPINE STOCK


EXCHANGE COPORATE GOVERNANCE GUIDEBOOK AND RETURN ON EQUITY
OF SELECTED PUBLICLY LISTED COMPANIES IN THE PHILIPPINES
FOR THE REPORTING YEARS 2012 AND 2013

Prepared and submitted by RICKA ABIGAEL R. DUMELOD, MARK JAMES C. TAYSON,


MARC EXEQUIEL TEODORO, DYAN MERZ S. TOLENTINO, RHONA CARLA M.
TORRES has been approved and accepted as partial fulfillment of the requirements for the degree
of Bachelor of Science in Accountancy.

___________________________________________
Dr. Mary Rosaleen Agaton

PANEL OF EXAMINERS

Approved by the College of Accountancy Thesis Committee on Oral Examination with a grade of
____ on May____, 2015.

_________________________________ __________________________________
Atty. Elizabeth V. Inoturan Asst. Prof. Nestor M. Noble, MBA

_________________________________ __________________________________
Mr. Noel E. Estrella, MBA Asst. Prof. Luciana L. Urquiola, Ph.D.

______________________________________________
ASSOC. PROF. PATRICIA M. EMPLEO, MBA, CPA
DEAN
Abstract

As proven by financial collapses in the past, one of the most important factors affecting

financial performance is corporate governance. For this reason, this thesis looks into the state of

corporate governance in the Philippines and its effect on return on equity, one of the primary

financial performance indicators. Studied are 150 publicly listed companies in the Philippines for

reporting years 2012 and 2013. Corporate governance is quantified by measuring companies'

percentage of compliance to the Philippine Stock Exchange Corporate Governance guidebook,

while return on equity is obtained from the companies' financial statements. These two factors

are then correlated to ascertain their relationship. The result shows that there is a significant small

positive correlation between corporate governance and return on equity. This knowledge has the

potential of influencing both companies and regulatory agencies to enforce stronger corporate

governance measures, effectively aiding in the improvement of collective financial performance

and acting as a safeguard for future financial collapses.


Table of Contents

Chapter 1: The Problem, Rationale and Background .................................................................................... 1


Introduction .............................................................................................................................................. 1
Research Questions .................................................................................................................................. 3
Theoretical Framework ............................................................................................................................. 3
Conceptual Framework ............................................................................................................................. 5
Significance of the Study ........................................................................................................................... 6
Scope and Limitations ............................................................................................................................... 6
Hypothesis................................................................................................................................................. 8
Assumptions.............................................................................................................................................. 9
Definition of Terms ................................................................................................................................... 9
Chapter 2: Review of Related Literature .................................................................................................... 11
Corporate Governance............................................................................................................................ 11
Importance of Corporate Governance .................................................................................................... 12
Quantifying Corporate Governance ........................................................................................................ 13
Return on Equity ..................................................................................................................................... 15
Similar Studies......................................................................................................................................... 15
Chapter 3: Research Methodology ............................................................................................................. 18
Research Design ...................................................................................................................................... 18
Study Locale ............................................................................................................................................ 18
Population and Sampling ........................................................................................................................ 18
Research Instrumentation ...................................................................................................................... 20
Data Gathering Procedure ...................................................................................................................... 21
Statistical Treatment of Data .................................................................................................................. 23
Chapter 4: Presentation, Analysis and Interpretation of Data ................................................................... 26
Chapter 5: Summary, Conclusions and Recommendations ........................................................................ 34
Summary of the Findings ........................................................................................................................ 34
Corporate Governance........................................................................................................................ 34
Return on Equity ................................................................................................................................. 34
Correlation between Compliance with the PSE-CG Guidebook and RoE ........................................... 35
Conclusion ............................................................................................................................................... 35
Recommendations .................................................................................................................................. 35
References .................................................................................................................................................. 37
Appendix A: List of Publicly Listed Companies as of December 31, 2013 .................................................. 44
Appendix B: Certification of the Number of Publicly Listed Companies..................................................... 52
Appendix C: List of Publicly Listed Companies Used as Samples ................................................................ 53
Appendix D: Compliance Report on Corporate Governance (PSE-CG Survey) ........................................... 57
Appendix D.1: Template of the PSE-CG Survey ...................................................................................... 57
Appendix D.1: Scoring Guide for the PSE-CG Survey .............................................................................. 58
Appendix E: Interviews ............................................................................................................................... 59
Appendix E.1: Copy of the E-mail Sent to Publicly Listed Companies .................................................... 59
Appendix E.2: Transcript of E-mail Interview with the Philippine Long Distance Telephone (PLDT)
Company ................................................................................................................................................. 60
Appendix E.3: Transcript of E-mail Interview with the Aboitiz Equity Ventures, Inc. (AEV) ................... 62
Appendix E.4: Transcript ofOral Interview with Mr. Hilario Tan ............................................................ 63
Appendix E.5 Transcript of E-mail Interview with PSEs CG Department ............................................ 69
E-mail from the Researchers ............................................................................................................... 69
E-mail Response of the PSE CG Department ...................................................................................... 70
Appendix F: Some Reasons for Non-Compliance to the PSE-CG Guidebook Measures ............................. 72
Appendix F.1: PSE-CG Guidebook Measure Number 2.3 ........................................................................ 72
Appendix F.2: PSE-CG Guidebook Measure Number 2.6 ........................................................................ 73
Appendix F.3:PSE-CG Guidebook Measure Number 4.4......................................................................... 75
About the Authors ...................................................................................................................................... 77
1

Chapter 1: The Problem, Rationale and Background

Introduction

For the Philippines, the path towards economic integration of the Association of Southeast

Asian Nations (ASEAN) comes with both opportunities and challenges. On one hand, it allows

the nation to achieve its fullest potentials through the free flow of goods and services (Aldaba et

al, 2013). On the other hand, it threatens the stability of local industries by directly pitting them

against stronger ones from countries like Singapore and Malaysia ("ASEAN economic community

blueprint", 2008). Whether the country, as well as the entire region, will thrive relies heavily upon

the ability of each industry to compete (Mitton, 2002). Given this increased importance of

Philippine companies' financial performance, there is a need to learn more about the factors that

could affect it.

In 2012, Malik writes how one of the important factors to consider for economies to prosper

is good corporate governance (CG). This has proven itself true in the past, from the 1997 Asian

financial crisis (Ponnu&Ramthandin, 2008) to the collapse of Enron in 2001 (Heath & Norman,

2004). More recently, lack of oversight also contributed to the bankruptcy of Lehman Brothers

in 2008 (Trumbull, 2010). It is thus crucial for the Philippines to ensure that CG measures exist

and are enforced for its industries to survive (Saldaa, 2000). As Morales writes in 2013, there is

much room for improvement given that the Philippines is still behind its Asian neighbors in terms

of CG according to Asian Corporate Governance Association.

In order to incentivize managers to adopt strong CG measures, there has to be a clear

message that CG is consistent with the goal of maximizing profit. For this reason, the researchers

intend to show the extent by which CG affects financial performance. Given that these two factors

are wide in scope, the researchers further limit them into more specific areas. For the purposes
2

of this study, CG is limited to compliance with the Philippine Stock Exchange Corporate

Governance Guidebook (PSE-CG guidebook), as evidenced by each companys Compliance

Report on Corporate Governance (PSE-CG survey). The guidebook consists of CG measures

that serve as recommendations to Philippine publicly listed companies (PLCs), based on both

international standards and the needs of the local environment ("CG guidelines for companies

listed on the Philippine Stock Exchange", n.d.). The researchers believe that compliance with the

guidebook is the most appropriate area of CG to be examined in this specific study, given that it

provides a benchmark by which CG of PLCs in the Philippines can be objectively compared.

Meanwhile, financial performance is limited to the companys return on equity (RoE). RoE is

believed to be a holistic measurement of how efficient the allocation of capital is, supported by

the fact that it does not only determine the generated return of the company from the equity, but

also shows the success of the management in running the company (Moore, 2004).

The researchers intend to study the said topic to aid both investors and management. By

enhancing the knowledge of investors with regards to the extent by which compliance with the

PSE-CG guidebook affects RoE, they can make wiser investment decisions, i.e., investing on

companies that comply more. Moreover, the researchers aim to further encourage management

to adopt and enforce stronger CG measures by appealing to their profit incentives. For instance,

knowing that companies that comply more with CG guidelines are more profitable could influence

management to improve their board structure by ensuring that its Chairman and CEO positions

are held by different and unrelated individuals. Also, the overall goal of improving the CG of

Philippine companies is believed to be necessary in preventing future collapses and bolstering

investments and growth.


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Research Questions

1. Describe the compliance with PSE-CG guidebook of the PLCs in the Philippines for the

following reporting years:

a. 2012

b. 2013

2. Describe the RoE of the PLCs in the Philippines for the following reporting years:

a. 2012

b. 2013

3. Identify the relationship that exists between the compliance with PSE-CG guidebook and

RoE of the PLCs in the Philippines for the following reporting years:

a. 2012

b. 2013

Theoretical Framework

Three theories prove to be relevant in this study the stakeholder theory, the stewardship

theory, and the agency theory.

Introduced by Freeman in 1984, the stakeholder theory states that while companies have

a lot of stakeholders, its shareholders are the most important ones. Thus, management must put

their needs above all. This is coupled with the idea that since they are the company's owners, a
4

fiduciary responsibility exists to maximize shareholder value. The theory stresses the importance

of knowing what relationship exists between compliance with the PSE-CG guidebook and RoE.

Proving that a positive relationship exists between these two factors would mean that compliance

with the PSE-CG guidebook is necessary to reach the primary goal of maximizing shareholder

value.

In the stewardship theory, Donaldson and Davis (1991) argue that the interests of

management and shareholders are consistent with each other. Improving financial performance

helps management in earning more compensation, as well as shareholders in receiving greater

returns on investment. Following the theory's logic, management striving to comply with the PSE-

CG guidebook could mean upholding both their self-interests and the shareholders' interests.

Lastly, the agency theory, first proposed by Stephen Ross and Barry Mitnick in the early

1970s, states that shareholders and management acting as agents usually have a conflict of

interest in terms of the direction the corporation should take. The conflict persists especially

considering the characteristic of humans as self-interested individuals (Daily, Dalton & Canella,

2003). This agency problem may be solved through a variety of ways, one of which is incentive

alignment (Javed & Iqbal, 2006). The study aims to align these incentives by showing that

compliance with the PSE-CG guidebook benefit not only shareholders, but their agents as well

through better RoE.


5

Conceptual Framework

Illustrated inside the circles are the two core elements of this research compliance with

the PSE-CG guidebook and RoE.

On the leftmost part of the conceptual framework, the list of guidelines that compose the

PSE-CG guidebook is found. The percentage of compliance with these guidelines will be the value

assigned to compliance with the PSE-CG guidebook. This is depicted by the black lines

connecting the list of guidelines and the green circle where Compliance with the PSE-CG

guidebook is written.

The researchers seek the value of both elements for reporting years 2012 and 2013. As

shown by the red arrows, the study looks into the extent of effect of compliance with the PSE-CG

guidebook and RoE for both reporting years.


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Significance of the Study

It is crucial for investors to have knowledge regarding the factors that significantly affect

financial performance if they are to make informed decisions with favorable outcomes. By showing

how and to what extent compliance with PSE-CG guidebook affects RoE, this study aids in that

decision making process. This is especially true considering RoE as a direct measure of the value

to the stockholder. In light of this new knowledge, the investors may also use their power to

influence more compliance with PSE-CG guidebook, or even the adoption of better CG measures.

Moreover, by emphasizing the effects of compliance with PSE-CG guidebook to RoE, this

study gives useful information to companies about how they can further increase their profitability.

This allows them to reevaluate and improve their existing CG policies and their enforcement.

Better CG measures caused by both company initiative and investor influence provides

substantial benefits to the country as well as to its trading partners. More than preventing

collapses from happening again, improvements in this area can also boost economic growth

through greater investor confidence.

Scope and Limitations

This research looks into the extent by which compliance with PSE-CG guidebook affect

RoE. While CG is big in scope and may involve many different ways of measuring it, the

researchers limit this study into CG in terms of compliance with PSE-CG guidebook. Thus, only

the guidelines listed on PSE-CG guidebookare considered. These guidelines are as follows:

Guideline 1: Develops and executes a sound business strategy

Guideline 2: Establishes a well-structured and functioning board


7

Guideline 3: Maintains a robust internal audit and control system

Guideline 4: Recognizes and manages its enterprise risks

Guideline 5: Ensures the integrity of financial reports as well as its external auditing function

Guideline 6: Respects and protects the rights of its shareholders particularly those that

belong to the minority or non-controlling group

Guideline 7: Adopts and implements an internationally-accepted disclosure and

transparency regime

Guideline 8: Respects and protects the rights and interests of employees, community,

environment and other stakeholders

Guideline 9: Does not engage in abusive related-party transactions and insider trading

Guideline 10: Develops and nurtures a culture of ethics, compliance and enforcement

The study does not reflect all the other factors that may also be a part of CG. Similarly,

analyses regarding the companies' financial performance are limited to their RoE only.

The study was based on data gathered in October 2014. Furthermore, the study reflects

the CG and RoE for reporting years 2012 and 2013 of 150 out of the 257 PLCs in the Philippines

at that time.

The decision to limit the study into two reporting years only is brought by the fact that

financial statements and other data available in the PSE website only cover reporting years 2012

and 2013. Data for other years will necessitate collaborating with all 150 PLCs, the sample size

of this study. Most of these companies have restrictions on the financial data it can disclose. While

it may be preferable to study the relationship of compliance with PSE-CG guidebook and RoE for

more than two years, it is not practical to exhaust all the other means available in obtaining

financial statements for reporting years prior 2012 given the excessive costs and limited time for
8

thesis completion. This decision is supported by similar studies. For instance, a study

by Heenetigala in 2011 about CG practices and financial performance of companies in Sri Lanka

has "availability of data" as its standard for selecting its scope and limitations. The same thing is

true for a similar study by Uwuigbe (2011) about Nigerian banks, where "easy accessibility" to

data was considered.

Hypothesis

H0: Compliance with PSE-CG guidebook has no effect on RoE of the PLCs in the

Philippines for the following reporting years:

a. 2012

b. 2013

H1: Compliance with PSE-CG guidebook has a positive effect on RoE of the PLCs in the

Philippines for the following reporting years:

a. 2012

b. 2013

H2: Compliance with PSE-CG guidebook has a negative effect on RoE of the PLCs in the

Philippines for the following reporting years:

a. 2012

b. 2013
9

Assumptions

1. Compliance with PSE-CG guidebook can be measured.

2. RoE can be measured.

3. The correlation between CG and RoE can be measured.

Definition of Terms

Terms used in the study are conceptually and operationally defined for better

understanding of the readers.

Corporate governance (CG) the system by which corporations are managed and controlled

(Shailer, 2004) created to help the entity reach its goals, as well as to protect the rights of internal

and external stakeholders (Baker, 2010)

Financial performance the measure of profitability of an entity for a specified period of time

(Heenetigala, 2011)

Philippine Stock Exchange (PSE) the only securities market in the Philippines (NASDAQ,

2015)

PSE Compliance Report on Corporate Governance (PSE-CG survey) a CG disclosure

survey created by the PSE to assess the level of adherence of PLCs to CG practices written on

the PSE-CG guidebook (MERALCO, 2012)

PSE Corporate Governance Guidebook (PSE-CG guidebook) consists of CG measures that

serve as recommendations to Philippine PLCs, based on both international standards and the
10

needs of the local environment ("CG guidelines for companies listed on the Philippine Stock

Exchange", n.d.)

Publicly listed companies (PLCs) a company that has undergone an initial public offering

(IPO) and whose securities are offered for sale for the general

public on a stock exchange or in the over-the-counter market (Bacidore, Boquist, Milbourn,

&Thakor, 1997)

Return on equity (RoE) the ratio of net income to total shareholders equity, reflecting asset

management, debt management, and profitability of the entity (Petty et al., 2012)
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Chapter 2: Review of Related Literature

The recent years have seen a renewed interest in the CG practices of companies. This is

evidenced by the increase in institutional shareholder activism on issues that relate to CG, as

discussed by Amico in 2014. Issues such as management oversight and security, executive

compensation, and management disclosures and board composition have received increased

scrutiny from shareholders. Initiatives in management integrity by securities and banking

regulators have also been imposed in regions of Europe, North America and multiple emerging

markets.

Corporate Governance

Because of the rise of public interest regarding CG, it is necessary to realize what CG is

and why it is important. According to Shailer (2004), CG is the system by which corporations are

managed and controlled. This is done in order to help the entity reach its goals, as well as to

protect the rights of internal and external stakeholders (Baker, 2010). CG encompasses the rights

of shareholders, the equitable treatment of shareholders, the role of stakeholders, the

responsibilities of the board, and disclosure and transparency (Asian Development Bank, 2014).

The same factors, found in the ASEAN Corporate Governance Scorecard, are used in this study.

Similar to ASEAN Corporate Governance Scorecard, the German Corporate Governance

Scorecard (Strenger, 2004) also discusses which factors form part of CG. Seven relevant criteria

are chosen, namely, CG commitment, shareholders and general meeting, cooperation between

management board and supervisory board, management board, supervisory board,

transparency, and reporting and audit of annual financial statement.


12

Meanwhile, according to Fombrum (2006), a good CG consists of five things. First is a

non-executive independent board structure to well represent the shareholders or owners of the

company. Second is the establishment of strict audit and financial controls to ensure financial

oversight and timely compliance of reports. Third is executive compensations that are linked to

the company's performance. Fourth is assurance of the rights of shareholders through one vote

per share. Last is having just enough anti-takeover mechanisms to protect the company from

possible takeovers.

Lastly, Corporate Governance Quotient also points to what the components of CG really

are, as discussed by Barrett, Perrin, Schlaudecker and Todd in 2004. Eight core categories are

included - board structure and composition, audit issues, charter and bylaw provisions, laws of

the state of incorporation, executive and director compensation, qualitative factors, director and

officer stock ownership, and director education.

Importance of Corporate Governance

It is important to know what constitutes good CG due to a number of reasons. According

to McGee (2009), not subscribing to good CG principles makes investors hesitant to invest. This

is especially true with disclosure. If investors cannot predict how the company operates, the

probability of them investing is low. This idea is echoed by Puffer and MacCarthy (2003) in their

study about Russia as one of the riskiest countries for investment. According to the study, this

situation is mostly due to the country's problems of nondisclosure and non-transparency. IU and

Batten (2001) also discusses how disclosure leads to transparency, which leads to knowledge

and the ability to protect oneself from harm - an important factor in creating informed market

participants.
13

Disclosure and transparency not only helps companies in getting investors, but also

contributes in creating more efficient equity markets (Yu, 2011). This could be achieved through

allowing investors to be involved in an instantaneous efficient price discovery of relevant

information related to stock price. Informed investors are needed to avoid sub-optimum growth

due to inefficient allocation of resources because of price volatility (Mugaloglu, 2013).

Another reason why knowledge about CG is of importance is the fact that a lot of market

failures in the past, both domestically and internationally, have been caused by poor CG. The

Asian Crisis of 1997 is brought about by the mismanagement of resources through poor investing

and risky financing decisions (Saldaa, 2000). Even after the crisis, same problems from poor

CG still ensued. For example, Clayton Holdings failed to monitor minimal standards of almost

54% of their loans in 2007 and caused them $63 billion debt (Bryce, 2012). Similarly, Olympus

spent hundreds of millions of dollars on questionable and money-losing acquisitions (Burrough,

2012). It did not only damage the reputation of both companies, but it also caused a large sum of

losses and collapse for Lehman Brothers. Monte de Piedad and Savings Bank, on the other hand,

incurred 1.8 billion Philippine pesos of bad loans to public utility operators and drivers, had

anomalous loans and irregularities not reflected in the audit reports, and had not maintained bank

ledgers properly. This in turn led to their operations being suspended (Echanis, 2006).

Quantifying Corporate Governance

Because CG is important for companies to reach their goals, efforts have been directed

to quantify it. This is necessary in order to be able to assess its effects even better. The ASEAN

Corporate Governance Scorecard quantifies CG on a compliance basis and assigns weight to the

five CG areas - rights of shareholders for 10%, equitable treatment of shareholders for 15%, role
14

of stakeholders for 10%, disclosure and transparency for 25%, and responsibilities of the board

for 40% (Asian Development Bank, 2014).

The MICG-Uitm-RAM-Biz Aid Technologies Corporate Governance Rating has also been

used to quantify CG by Fombrun in 2006. This measurement uses a five-point likert scale, with

375 as the highest possible score. The eight principal CG attributes and their corresponding

weight are strategic planning and performance management (total raw score of 30, weight of 5%),

board, committee and management (total raw score of 85, weight of 15%), risk management and

internal control (total raw score of 40, weight of 15%), ownership structure and concentration (total

raw score of 35, weight of 15%), accountability and transparency (total raw score of 85, weight of

20%), shareholders and investor relations (total raw score of 40, weight of 15%), business ethics

and responsibility (total raw score of 30, weight of 10%), and intellectual capital (total raw score

of 30; weighing 5%). However, this method is specifically designed for Malaysian Public Entities.

The studies mentioned earlier discussing which components form part of CG are also

useful in the search for ways to quantify CG. The Corporate Governance Quotient, which is

included with the proxy analysis service supplied by the RiskMetrcis/ISS for their institutional

investor clients, calculated CG ratings based on 61 variables across eight core categories

(Barrett, Perrin, Schlaudecker & Todd, 2004). Meanwhile, the German Corporate Governance

Scorecard (Strenger, 2004) also measures CG. The first part contains five pages dedicated for

individual scoring process, while the second part contains the summary page giving the user a

review of the partial scores achieved for each criterion, as well as the total score. The scorecard

is divided into seven relevant criteria already mentioned.


15

Other methods used are the Corporate Library founded in 1999 by Nell Minow and Robert

A.G. Monks, the GMI Metric founded in 2000 by Governance Metrics International, and

Accounting & Governance Risk developed by Audit Integrity.

Return on Equity

The most compelling reason to enforcing strong CG measures is its effect on financial

performance, one indicator of which is RoE. Return on equity is a profitability ratio that measures

how effectively total shareholders equity turns into income. Profitability ratios show the ultimate

measure of performance: how companies generate profits (Brooks, 2010). It is computed by

dividing net income with total shareholders equity. A more comprehensive formula, the DuPont

technique, can also be used.

Many researchers point to RoE as one of the best indicators of financial performance. In

2010, Brooks states that RoE reflects the operating efficiency, financial leverage, and asset

management efficiency of a company. It is thus a holistic measurement of how efficient the

allocation of capital is. It does not only determine the generated return of the company from the

equity, but also shows the success of the management in running the company (Moore, 2004).

Similar Studies

Similar studies attempt to correlate CG and financial performance, one of which is by

Ponnu and Ramthandin (2008). The study seeks to find the relationship between the two factors

of the top 100 PLCs in Malaysia for the years 2005 and 2006. CG disclosures are interpreted

through the use of a governance rating customized for the Malaysian setting called the MICG-
16

Uitm-RAM-Biz Aid Technologies Corporate Governance Rating. In addition, financial

performance is measured through RoE and stock price performance, both of which can be found

on the companies' annual reports. To find the link between CG and financial performance,

correlation analysis is used. Final results of the study depict a positive relationship between CG

and financial performance.

Another study conducted in Pakistan by Javed and Iqbal (2006) correlates CG and firm

performance of 50 firms for the years 2003, 2004 and 2005. A complex multifactor CG rating

composed of 22 governance indicators is utilized to measure CG. These indicators are

encompassed into three sub-indexes with eight factors each. Weights are assigned by the

researchers with the aid of financial experts. Furthermore, firm performance is measured by the

total amount of assets, debt-to-total asset ratio, and average sales growth. Tobin Q is used as

valuation measure to correlate CG with firm performance. The results of the study document a

positive and significant relation of the quality of CG and firm performance.

Yu (2011) also conducted a study investigating the relationship between stock price

informativeness, a factor that drives financial performance indicated by stock price, and CG. Firm-

level data from 22 developed countries were used in measuring firm-specific stock return variation

and future earnings response coefficients. Results indicate that these financial performance

factors increases with the quality of a firms CG. The study used Gov7, an index developed in line

with Aggarwal et al. (2009) that measures the companys overall CG quality; takeover index,

patterned on RiskMetrics database, which covers antitakeover defenses of a firm; audit index,

which practically covers disclosure and transparency quality; and board index, which reflects the

composition of the board. Results indicate that these financial performance factors increases with

the quality of a firms CG.


17

Meanwhile, a sample of 398 firms from Indonesia, Korea, Malaysia, Thailand, and the

Philippines revealed that CG had a strong impact on the financial performance during the East

Asian financial crisis of 1997-1998. Stock returns for one year is used, and CG is measured by

determining if it is listed in American Depository Receipt, and if it is audited by one of the Big Six

international accounting firms. This study of Mitton (2002) showed a significant positive

association between better stock price performance, and higher disclosure quality, higher outside

ownership concentration, and focused firms rather than diversified.

A similar study is also conducted by Uwuigbe (2011) that aims to affirm the correlation of

a company's financial health with regards to its CG policies. A sample of 21 Nigerian banks listed

in the Nigerian Stock Exchange was utilized for the years 2006-2008. Using Return of Equity and

Return on Assets as the defining factors of Financial Performance, the study correlated the

variables with CG represented by board size, board composition and directors' equity holdings.

The study resulted in (1) board size and (2) proportionality of independent directors being

negatively related to financial performance. Meanwhile, the rate of director's equity interest and

CG disclosure showed a positive correlation.


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Chapter 3: Research Methodology

Research Design

The Quantitative-Correlation design is selected in determining the effect of compliance

with PSE-CG guidebook on RoE. Quantitative research design uses numerical data and

mathematical means to prove the hypotheses of the study (Harwell, 2011). Furthermore, the

correlational research design is used to determine the kind and extent of relationship that exists

between the two variables ("Survey and correlational research designs", n.d.).

Study Locale

The study locale is the University of Santo Tomas Alfredo M. Velayo College of

Accountancy, school year 2014-2015.

Population and Sampling

The study population consists of all 257 PLCs in the Philippines as of December 31,

2013. The list of these PLCs is found on Appendix A, confirmed by a formal certification from

PSE found on Appendix B. Meanwhile, the cut-off date of December 31, 2013 is deemed

necessary, as the data considered in this study comprise of conditions existing during reporting

years 2012 and 2013.The decision to limit the study into two reporting years only is supported by

reasons already discussed in the Scope and Limitations portion of Chapter 1.


19

The sample size of this study is 150 PLCs,with the desired reliability of .95 and maximum

error of .05. In arriving at this sample size, the stratified random sampling technique is used. This

sampling technique divides the population into strata, that is, groups with shared characteristics,

from which samples are then selected randomly (Stratified random sampling, n.d.).

Using the Philippine Social Survey Council as basis, a sample size of 151 PLCs

representing different sectors is determined. However, this sample size is reduced to 150 due to

the unavailability of data of the only PLC representing the ETF Sector. The number of samples

chosen from each sector is given in Table 3.1 below.

Table 3.1

Number of Samples per Sector

N
Financials Sector 18
Industrial Sector 39
Holding Firms Sector 24
Property Sector 23
Services Sector 31
Mining and Oil Sector 15
ETF Sector 0
Total 150

The random sampling tool in Microsoft Excelis used to arrive at the list of PLCs selected

as samples in this study. This list can be found on Appendix C.


20

Research Instrumentation

Before testing their correlation, both compliance with PSE-CG guidebook and RoE of each

company need to be measured.

In measuring compliance with the guidebook, the PSE-CG survey is used. The survey lists

the guidelines presented in the guidebook, as well as more specific CG measures under each

guideline. Every year, companies are required to supply a binary response to this survey, that is,

a yes or a no, reflecting their compliance with a total of 75 CG measures provided. Furthermore,

this survey is duly signed by an independent director and a President/CEO of the company,

contributing to its reliability. This survey, as well as a scoring guide, can be found on Appendix

D. The percentage of "Yes" answers is the quantitative value assigned to compliance with the

guidebook. A study by Black, Jang, and Kim (2003) utilizes a similar method. With Korean public

companies as population, the authors looked into the effect to firm value of the number of

observant of CG measures studied.

Meanwhile, each companys RoE is simply obtained from their financial statements. As

previously mentioned, RoE is computed by dividing net income over shareholders equity. For this

study, the amounts of net income considered in computing RoE are the companies audited net

income after tax and equity. For companies with a parent-subsidiary relationship, amounts

considered are those appearing in their separate financial statements, as it is a better reflection

of their own separate operations. For companies with fiscal years that do not end with December

31, the RoE considered is their RoE for the period ending at their respective fiscal year-ends. For

instance, the 2012 RoE of a company with a fiscal year that begins on April 1, 2012 and ends on

April 1, 2013 is their RoE during that period. The researchers did not convert these amounts to

the RoE that would have been reported had such companies elected to align their accounting
21

period with the regular calendar year, given that the difference would be immaterial. It would be

observed that the RoEs of companies barely change across successive accounting periods, as

shown in Table 4.2 of Chapter 4. Thus, the costs of converting these amounts would outweigh

the benefits. Another reason for this treatment is to have a consistent data gathering procedure

among all companies studied, where RoE is taken from the Annual Reports submitted to the PSE.

Data Gathering Procedure

The researchers sent an e-mail to Ms. Martha H. Vinzons from PSE's Public and Investors

department to ask for the official list of PLCs as of December 31, 2013. Upon payment of data

fee for a total of Php240, a list of these PLCs grouped into sectors, as well as a formal certification,

was given to the researchers.Using Microsoft Excel 2007, a sample size of 151 PLCs was

selected from the total population of 257 PLCs based on the recommendations of the Philippine

Social Survey Council.

Data regarding each companys compliance with PSE-CG guidebook and their respective

RoE was then gathered from the official PSE website (http://pse.com.ph) for the reporting year

2012, and from the newly launched PSE disclosure website (http://edge.pse.com.ph) called the

Electronic Disclosure Generation Technology (PSE-EDGE) for the reporting year 2013.

Specifically, the researchers downloaded each companys accomplished PSE-CG survey, from

which their level of compliance with the PSE-CG guidebook will be known, and their Annual

Reports, from which their RoE will be taken.


22

The researchers were able to obtain data for all the PLCs that are part of the list of samples

except one the First Metro Philippine Equity Exchange Traded Fund Inc., the only company

representing the ETF sector. This led to the reduction of the sample size from 151 to 150.

The researchers proceeded to counting the Yes answers of each company to the CG

measures listed in the PSE-CG survey. Partial compliance was not counted because the PSE-

CG guidebook requires full compliance with the guidelines.The count was verified by a member

of the group who was not assigned to do the first count. The percentage of Yes answers over a

total of 75 CG measures listed was then obtained.

Each companys RoE is then obtained from their Annual Reports. Negative RoE was

replaced by zero, given that theoretically, there is no such thing as negative RoE according to

an accounting expert, Mr. Luis Chua (personal communication, January 23, 2015). This treatment

is also supported by Hoques study in 2006, which demonstrated that an inclusion of negative

RoE risks the whole credibility of it as a measure of performance. For this reason, recent studies

based on market performance have also excluded negative RoE and replaced them with zero. As

in the case with the PSE-CG survey, the RoE appearing in each companys Annual Report is

recomputed by the researchers.

A list of the percentage of Yes answers to the PSE-CG survey and the RoE of each

company was submitted to the groups statistician to test for correlation. Initially, the data resulted

to a small negative correlation for the reporting year 2012 and a small positive correlation for the

reporting year 2013. The result for the reporting year 2012 is inconsistent with the review of related

literature, prompting the statistician to advise the researchers to check the accuracy of the data

gathered. Upon checking, the researchers learned that the reason for the inconsistency was the

submission of the wrong file, where some of the companies data have not been encoded yet.
23

After submitting the correct file, both reporting years resulted to a small positive correlation

between the two variables studied, which is consistent with the review of related literature.

Finally, interviews were made to support the results and analyses presented in this study.

First, the researchers sent interview questionnaires to some PLCs through e-mail.

Representatives from two companies replied the Philippine Long Distance Telephone (PLDT)

Company and the Aboitiz Equity Ventures, Inc. (AEV). Also conducted was an interview with Mr.

Hilario Tan, who has over 25 years of experience working in the areas of compliance and CG.

Lastly, the researchers sent an e-mail to the CG department of the PSE to obtain their opinion

regarding the verbal interpretation of the mean of the percentage of compliance with the PSE-CG

guidebook. Transcripts of such interviews are found on Appendix E.

Statistical Treatment of Data

Answering research question number 1 requires assigning a value to each companys

compliance with the PSE-CG guidebook. To do this, the total number of Yes answers to the CG

measures listed in the PSE-CG survey is first obtained using simple addition. The percentage of

Yes answers over the maximum possible number of Yes answers is then computed. Percentage

allows the expression of ratios in terms of whole numbers(Bringhurst, 1997). The following

formula is used:

Formula for Percentage (Bringhurst, 1997)


24

The weighted mean of each companys compliance percentage, as well as the weighted

mean of each companys RoE for research question number 2, is then computed. Weighted mean

is a measure of central tendency; it represents the average of a given data (MacMillan, Preston,

Wolfe, & Yu, 2007). Used is the following formula:

Formula for Weighted Mean (MacMillan, Preston, Wolfe, & Yu, 2007)

The standard deviation statistic is also instrumental in answering both research

questions 1 and 2. Used as a measure of the dispersion or variation in a distribution, the standard

deviation statistic is equal to the square root of the arithmetic mean of the squares of the

deviations from the arithmetic mean (MacMillan, Preston, Wolfe, & Yu, 2007). In this study, it is

used to determine the representative value of each companys results. Its formula is found below:

Where

Formula for Standard Deviation Statistic (MacMillan, Preston, Wolfe, & Yu, 2007)
25

Research question number 2 also requires the computation of each companys RoE.

Return on equity is the ratio of net income to total shareholders equity, reflecting asset

management, debt management, and profitability of the entity (Petty et al., 2012). It is computed

as follows:

Formula for Return on Equity (Petty et al., 2012)

To answer research question number 3, each company's PSE-CG survey percentage and

their RoE are tested for correlation using the formula for Pearson Correlation. This is in line with

the method used in Ponnu's (2008) study about the relationship between CG and RoE of PLCs

in Malaysia. Pearson's correlation coefficient provides a global description of dependence

between random variables X and Y(Kreinovich, Ngyuyen, & Wu, 2013). This formula is illustrated

below:

Formula for Pearson Correlation (Lane, 2010)


26

Chapter 4: Presentation, Analysis and Interpretation of Data

This chapter presents the results of the study about the relationship of CG and RoE of the

PLCs in the Philippines for 2012 and 2013. The tables of the data gathered used for interpretation

and analysis are presented in the sequence based on the statement of the problems in Chapter

1.

Table 4.1

Compliance with the PSE-CG Guidebook of Selected PLCs in the Philippines

CG 2012 CG 2013
M 0.91 0.91
SD 0.09 0.08
VI High High

As seen in Table 4.1, the overall percentage of compliance of selected PLCs with the

PSE-CG guidebook is high for both reporting years 2012 (M = 0.91, SD = 0.09) and 2013 (M =

0.91, SD = 0.08). The verbal interpretation shown is according to the CG office of the PSE, as

shown in their e-mail response found on Appendix E. This means that most Philippine PLCs

comply with most of the guidelines presented in the PSE-CG guidebook. This positive result can

be attributed to the various ways the PSE incentivizes compliance with the guidebook. Though

penalties are not imposed for non-compliance, PLCs are required to explain the reason for such

failure ("CG guidelines for companies listed on the Philippine Stock Exchange", n.d.).In addition,

the PSE Bell Awards is held to recognize PLCs that show excellence in CG. One of the primary

criteria used by the panel of judges in determining the list of awardees is their compliance with

the PSE-CG guidebook (de Barras, 2014).

Furthermore, the researchers looked into the CG measures with the lowest level of

compliance, as seen in Table 4.1.1. Given their importance, these areas need special attention
27

to further increase the overall level of compliance. The researchers also examined the possible

reasons for non-compliance, so as to give meaningful information to anyone who might be

working on improving compliance with such measures.

Table 4.1.1
Least Complied PSE-CG Guidebook Measures for the Reporting Years 2012 and 2013
Frequency
PSE-CG Guidebook Measures 2012 2013
2.3 Have at least thirty percent (30%) of its directors as independent
58 56
directors.
2.6 Have its Chairman and CEO positions held separately by individuals
84 75
who are not related to each other.
4.4 Have a unit at the management level, headed by a Risk
79 86
Management Officer (RMO).

With n = 150, only 58 (38.67%) and 56 (37.33%) PLCs complied with PSE-CG measure

no. 2.3, to have at least thirty percent (30%) of its directors as independent directors, for reporting

years 2012 and 2013, respectively. This makes it the CG measure with the lowest level of

compliance in the survey.

Independent director is defined by the PSE as a person who, apart from his fees and

shareholdings, is independent of management and free from any business or other relationship

which could, or could reasonably be perceived to, materially interfere with his exercise of

independent judgment in carrying out his responsibilities as a director (Bautista, 2002). Their

independence is further assured by qualifications such as not being, and not being a relative of,

a major stockholder of the company, not having been employed in any executive capacity by the

same PLC within the last five years, etc. According to Stein and Plaza (2011), independent

directors are important,being objective actors that guarantee the protection of shareholder

interests, especially of those belonging to the minority (Jensen & Meckling, 1976).
28

A common reason given by companies with less than 30% independent directors such as

DMCI Holdings, Inc. (DMC), Petron Corporation (PCOR) and Universal Robina Corporation

(URC) is that they comply with Securities and Exchange Commission (SEC) memorandum

circular no. 6 series of 2009 to have at least two independent directors, or at least twenty percent

(20%) of its board size, whichever is lesser. This is also a regulation already incorporated in the

companys by-laws. Meanwhile, some of the companies which did not comply with the guideline

are already considering an additional independent board of director, such as International

Container Terminal Services, Inc. (ICT).These explanations by non-complying PLCs are found on

their accomplished PSE-CG surveys, the relevant parts of which are found on Appendix F.1.

CG measure no. 2.6, to have its Chairman and CEO positions held separately by

individuals who are not related to each other, has been complied with by only 84 (56.00%) and

75 (50.00%) PLCs for the reporting years 2012 and 2013, respectively. The separation is

important to prevent the risks that could exist when one person has a monopoly of power over

the organization (DGA, 2004). This is explained by Jensen (1993) in his Presidential Address to

the American Finance Association. Given that the Chairman is in charge of hiring, firing,

evaluating, and compensating the CEO, separation is necessary to prevent him from prioritizing

his own interests over the interests of the company.

As seen in Appendix F.2, companies such as Aboitiz Equity Ventures, Inc. (AEV) and

Robinsons Land Corporation (RLC) report in their accomplished PSE-CG surveys that their

Chairman and CEO are held by separate related individuals. Family-owned corporations usually

have this kind of setting (H. Tan, personal communication, January 23, 2015). Other companies

such as Bloomberry Resorts Corporation (BLOOM) and First Gen Corporation (FGEN) have its

Chairman and CEO held by only one individual who is also the controlling shareholder.
29

Schmid and Zimmerman (2008) lists a variety of reasons for non-compliance with this CG

measure. For instance, information costs could arise from such separation. Specifically, critical

information which is beneficial for both CEO and Chairman may not always be transferred

between the two, leading to a less than optimum performance. Assigning the same person with

the Chairman and CEO positions can also reduce rivalry between the two, as well as incentivizing

good performance by the CEO through the possibility of being elected Chairman as well.

Lastly, only 79 (52.67%) and 86 (57.33%) PLCs complied with CG measure no. 4.4, to

have a unit at the management level, headed by a Risk Management Officer (RMO), for reporting

years 2012 and 2013, respectively. The importance of this CG measure is affirmed by OECD

(2014), stating that one of the insufficiencies leading to financial crisis is the failure of risk

management adjusting corporate strategy to respond to the new risks that arise. This is a task

RMOs are assigned to fulfill. However, companies do away with this CG measure due to the

widespread belief that the assurance of risk prevention by RMOs is low. Companies such as

Megaworld Corporation (MEG), Empire East Land Holdings, Inc. (ELI), and Puregold Price Club,

Inc. (PGOLD) have their risk management functions performed by the companys internal audit

unit, while Basic Energy Corporation (BSC) already hired a part-time risk management consultant

for this function. Information is taken from each companys accomplished PSE-CG surveys and

can be seen on Appendix F.3.


30

Table 4.2
Return on Equity of Selected Publicly Listed Companies in the Philippines

RoE 2012 RoE 2013


M 0.11 0.10
SD 0.11 0.10

As seen in Table 4.2, the RoE of selected PLCs is consistent for reporting years 2012 (M

= 0.11, SD = 0.11) and 2013 (M = 0.10, SD = 0.10). This insignificant change in RoE also means

that the quantitative factors affecting it barely changed throughout the two-year period. Based on

the DuPont analysis, these factors include Net Profit Margin, Asset Turnover, and Financial

Leverage.

Net Profit Margin measures the overall performance of a company and provides the net

earnings of a company after deducting all expenses, including interest and taxes (Herciu, Ogrean,

& Belascu, 2011). It also reflects the managements strategy in pricing by showing how much net

earnings is generated from a single peso of an asset. Meanwhile, Asset Turnover measures how

much sales is generated from each peso of an asset (Nanavati, 2013). It reflects the productivity

of a companys assets for the period, as well as the degree of required capital to generate a peso

of sales volume. Lastly, Financial Leverage pertains to the extent of debt in a companys capital

structure. A high level of financial leverage means that the company is relying more on debt rather

than stocks in financing its operations (Nanavati, 2013). The higher the financial leverage, the

higher the cost of debt is.


31

Table 4.3.1
Correlation between PSE-CG guidebook and RoE in 2012
Return on Equity
Corporate Governance Pearson Correlation .246**
Sig. (2-tailed) .002
Note:**Correlation is significant at the 0.01 level (2-tailed)

Table 4.3.2
Correlation between compliance with PSE-CG guidebook and RoE in 2013
Return on Equity
Corporate Governance Pearson Correlation .281**
Sig. (2-tailed) .001
Note:**Correlation is significant at the 0.01 level (2-tailed)

In table 4.3.1, the factor correlation analysis reveals that CG has a small positive linear

correlation with RoE (r= .246, p < .01) in 2012. For 2013, CG also has a small positive linear

correlation with RoE (r= .281, p < .01), as shown in table 4.3.2. Both results are statistically

significant. This result concurs with several studies where CG positively correlates with financial

performance. These studies include the ones by Ponnu and Ramthandin (2008) in Malaysia,

Javed and Iqbal (2006) in Pakistan, and Yu (2011), all of which are already discussed in the

Chapter 2 of this thesis.

Interviews held by the researchers also affirm this positive result. Both representatives

from the Philippine Long Distance Telephone (PLDT) Company and Aboitiz Equity Ventures

(AEV) state that good CG brings about business advantages by building reputation. By being

known as a trustworthy company by suppliers and customers alike, the assurance of long-term

relationships is increased. This, in turn, brings more revenues for distribution to shareholders or

as investment for bigger business opportunities. Both companies were awarded in the 2013 PSE

Bell Awards for their outstanding CG (Miraflor, 2013).


32

Another advantage stated by PLDT is the effect of good CG to a companys credit rating.

According to them, one of the primary considerations of credit rating agencies in determining

credit worthiness is the companys CG. If these agencies release a good credit score, companies

would find capital borrowing easier. This means that they would have more money for profitable

investments, or would incur less costs due to borrowing. Naturally, these have a direct effect on

a companys financial status.

Lastly, PLDT also believes good CG can lead to avoidance of conflicts that would interfere

with how business are run. When conflicts are avoided, management has more time dealing with

the concerns that bring profit to the company, instead of trying to resolve those conflicts.

Furthermore, it helps promote goal congruence by making sure that each member of the company

are working with each other, instead of against each other to protect their own interests.

Though statistically significant, the result of the study shows that the correlation is small.

The interviews conducted by the researchers provide insight on why that is so. In an interview

with PLDT, they say that while they believe good CG has an effect on RoE, the extent is limited.

This is true given that RoE is also affected by many other risks and factors, such as business

strategy, execution, research and product development, risk management, etc. This is echoed

by a representative from Aboitiz Equity Ventures (AEV), who says that RoE is not a primary

consideration for their implementation of CG measures, although they believe that good RoE may

be an unintended consequence of good CG.

Another reason can be inferred from an interview with Mr. Hilario Tan. A recurring

statement made in the interview is how weak the state of CG is in the Philippines. This is

consistent with what Morales writes in 2013 when he compared the state of CG in the Philippines

with its neighboring countries. While the results of the study show that the level of compliance of

PLCs with the PSE-CG guidebook is high, this is not reflective of the entire state of CG in the
33

Philippines, given that the former is only a small part of the latter. The researchers believe that

this is a possible reason for the small correlation. Specifically, the fact that significant CG

measures are not yet part of the PSE-CG guidebook may be the reason why RoE is not affected

as much as it could be.

Mr. Tan draws attention to a number of CG deficits of the Philippines, such as the lack of

sufficient laws to protect minority shareholders. For instance, most minority shareholders in the

board of directors are appointed by the majority. This is counterproductive to the goal of protecting

minority shareholders since according to him, the majority usually appoints shareholders who will

look independent, when in fact they are not. Furthermore, he also points to the lack of efforts to

assure that companies work towards the goal of minimization of related parties in the board of

directors, stating examples such as Ayala, Metrobank, and SM.

The researchers believe that the reason for this deficits mentioned by Mr. Tan is twofold.

The first is the absence of teeth in the implementation and enforcement of CG policies that could

immensely improve the state of CG in the Philippines. Positive reinforcement, such as the creation

of the PSE Bell Awards previously mentioned, is used to incentivize compliance with the PSE-CG

guidebook, but negative reinforcement, which could prove to be more effective, is not. According

to the PSE website, non-compliance with the PSE-CG guidebook will not result to penalties being

imposed to companies. The second reason could be the lack of initiative from companies.

According to Mr. Tan, most companies do not have CG departments, which can significantly

improve their CG.


34

Chapter 5: Summary, Conclusions and Recommendations

This chapter presents the summary of the research paper, the conclusions derived and

the recommendations generated from the results of this study. This study is about the relationship

of compliance with PSE-CG guidebook and RoE of selected PLCs in the Philippines for the

reporting years 2012 and 2013.

Summary of the Findings

Corporate Governance

The data from which results were summarized in this chapter were gathered by using the

PSE-CG survey. This resulted to a weighted mean of 0.91 with a standard deviation of 0.09 in

2012, and a weighted mean of 0.91 with a standard deviation of 0.08 in 2013. Translated to its

verbal interpretation, the results show a high percentage of compliance based on the opinion of

the CG department of the PSE.

The least complied CG measures include having at least thirty percent (30%) of its

directors as independent directors, having its Chairman and CEO positions held separately by

individuals who are not related to each other, and having a unit at the management level, headed

by a Risk Management Officer (RMO).

Return on Equity

RoE is computed by dividing the companys net income with its shareholders equity,

which are found on the companys Annual Reports. This resulted to a weighted mean of 0.11 with

a standard deviation of 0.10 for both reporting years 2012 and 2013.
35

Correlation between Compliance with the PSE-CG Guidebook and RoE

This study used Pearson product-moment correlation coefficient to measure the

relationship between compliance with the PSE-CG guidebook and RoE. The factor correlation

analysis shows that CG has a small positive linear correlation with RoE(r= .246, p < .01) that is

statistically significant. This implies that in effect, as compliance with PSE- CG guidebook

improves, the companys RoE increases. The same is true for 2013 (r= .281, p < .01).

Conclusion

Based on the study and its results, the researchers find that there is a positive correlation

between compliance with PSE-CG guidebook and RoE, as confirmed by the results of the

Pearson product-moment correlation coefficient model. The review of related literature and the

interviews conducted by the researchers also concur with the said results.

Though statistically significant, the correlation between the two factors is small. With the

interviews conducted, the researchers find two main reasons for the small correlation. The first is

from PLDT, stating that a lot of factors affecting RoE water down the effects CG has on it. Another

reason is inferred from an interview with Mr. Hilario Tan, who speaks of the deficits in CG in the

Philippines. The researchers believe that the since policies that could significantly improve CG

are excluded from the PSE-CG guidebook, its effect on RoE is decreased.

Recommendations

In order to increase the positive linear correlation of compliance with PSE-CG guidebook

and RoE, the researchers urge regulatory bodies to improve the implementation and enforcement

of CG policies in the Philippines. According to the interviews and review of related literature made
36

in this study, the state of CG in the country is weak compared to its neighbors. The researchers

believe that improving the kinds of CG measures that are enforced would increase its effect on

RoE, as well as other financial performance measures. This could be done by considering the

introduction or increase in the penalties imposed for non-compliance instead of giving mere

recommendations to companies. Furthermore, the creation of government bodies and company

departments specializing in CG can significantly benefit the achievement of this goal.

For further study, the researchers recommend the use of other ways to measure CG that

are more encompassing of its elements. Specifically, the use of the data from the ASEAN

Corporate Governance Scorecard (ACGS) is encouraged. The scorecard is a benchmark set by

the ASEAN Capital Markets Forum in order to obtain comparative information regarding the CG

practice of six ASEAN member countries, namely, Indonesia, Malaysia, Philippines, Singapore,

Thailand and Vietnam (Asian Development Bank, 2014). This information would be released in

November 2015, which is also the reason why this study was unable to use such method.
37

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44

Appendix A: List of Publicly Listed Companies as of December 31, 2013

Market
Code Company
Capitalization
Financials Sector
Banks
ASIA Asiatrust Development Bank, Inc. 728,092,575.00
AUB Asia United Bank Corporation 22,033,098,516.00
BDO BDO Unibank, Inc. 245,648,047,500.80
BPI Bank of the Philippine Islands 302,290,274,705.00
CHIB China Banking Corporation 84,232,037,822.00
CSB Citystate Savings Bank, Inc. 1,162,784,668.04
EIBA Export and Industry Bank, Inc. 4,923,830,641.60
EIBB Export and Industry Bank, Inc.
EW East West Banking Corporation 27,420,353,523.00
MBT Metropolitan Bank & Trust Company 207,369,720,536.30
PBB Philippine Business Bank 7,536,168,130.00
PBC Philippine Bank of Communications 20,370,389,740.00
PNB Philippine National Bank 93,685,475,880.00
PSB Philippine Savings Bank 33,635,348,740.00
PTC Philippine Trust Company 82,000,000,000.00
RCB Rizal Commercial Banking Corporation 54,215,492,115.00
SECB Security Bank Corporation 69,687,172,969.60
UBP Union Bank of the Philippines 80,819,224,920.00
Other Financial Institutions
AGF AG Finance, Incorporated 811,654,406.20
BKD Bankard, Inc. 2,980,524,300.00
BLFI BDO Leasing and Finance, Inc. 4,324,950,624.00
COL COL Financial Group, Inc. 7,873,320,000.00
FAF First Abacus Financial Holdings Corporation 930,696,000.00
FFI Filipino Fund, Inc. 357,702,750.00
I I-Remit, Inc. 1,754,427,308.92
MAKE Maybank ATR KimEng Financial Corporation 19,359,285,200.76
MED Medco Holdings, Inc. 143,500,000.00
MFC Manulife Financial Corporation 1,428,805,776,675.00
NRCP National Reinsurance Corporation of the Philippines 2,888,103,616.00
PSE The Philippine Stock Exchange, Inc. 21,981,141,000.00
SLF Sun Life Financial Inc. 827,838,960,480.00
V Vantage Equities, Inc. 5,186,484,098.51
Industrial Sector
Electricity, Energy, Power & Water
45

ACR Alsons Consolidated Resources, Inc. 8,430,610,000.00


AP Aboitiz Power Corporation 250,192,546,438.00
EDC Energy Development Corporation 99,937,500,000.00
FGEN First Gen Corporation 43,932,713,666.42
FPH First Philippine Holdings Corporation 29,671,268,207.10
H2O Calapan Ventures, Inc. 1,057,289,720.00
MER Manila Electric Company 282,901,774,955.00
MWC Manila Water Company, Inc. 44,317,278,236.00
PCOR Petron Corporation 130,876,458,778.12
PNX Phoenix Petroleum Philippines, Inc. 6,429,497,544.00
SPC SPC Power Corporation 6,659,655,523.35
TA Trans-Asia Oil and Energy Development Corporation 6,809,407,859.80
VVT Vivant Corporation 11,298,961,945.92
Food, Beverage & Tobacco
ANI AgriNurture, Inc. 2,839,173,096.10
BMM Bogo-Medellin Milling Company, Inc. 318,000,000.00
CAT Central Azucarera de Tarlac, Inc. 353,738,527.52
DMPL Del Monte Pacific Limited 29,432,821,611.70
DNL D&L Industries, Inc. 22,500,002,668.50
EMP Emperador Inc. 160,500,000,000.00
FOOD Alliance Select Foods International, Inc. 1,069,426,237.00
GSMI Ginebra San Miguel, Inc. 6,456,565,106.00
JFC Jollibee Foods Corporation 182,162,492,113.50
LFM Liberty Flour Mills, Inc. 2,427,475,336.60
LTG LT Group, Inc. 167,082,244,446.16
PCKH Pancake House, Inc. 3,566,931,825.00
PF San Miguel Pure Foods Company, Inc. 39,666,768,848.00
PIP Pepsi-Cola Products Philippines, Inc. 16,621,975,255.50
RCI Roxas and Company, Inc. 5,764,503,285.00
RFM RFM Corporation 17,540,241,456.30
ROX Roxas Holdings, Inc. 4,829,722,373.16
SFI Swift Foods, Inc. 217,730,025.96
SMC San Miguel Corporation 148,561,500,625.00
URC Universal Robina Corporation 246,727,868,622.30
VITA Vitarich Corporation 1,644,033,761.59
VMC Victorias Milling Company, Inc. 4,365,201,394.20
Construction, Infrastructure & Allied Services
ABG Asiabest Group International Inc. 2,000,000,000.00
CA Concrete Aggregates Corporation 914,919,849.00
CAB Concrete Aggregates Corporation
CMT Southeast Asia Cement Holdings, Inc. 6,793,796,270.57
DAVIN Da Vinci Capital Holdings, Inc. 967,499,973.34
46

EEI EEI Corporation 9,896,488,181.75


FED Federal Resources Investment Group, Inc. 327,192,000.00
HLCM Holcim Philippines, Inc. 100,007,536,732.00
LRI Lafarge Republic, Inc. 51,249,453,525.60
MWIDE Megawide Construction Corporation 23,091,965,778.00
PHN Phinma Corporation 3,114,074,352.00
PNC Philippine National Construction Corporation 854,779,319.10
SRDC Supercity Realty Development Corporation 88,000,000.00
T TKC Steel Corporation 1,720,200,000.00
VUL Vulcan Industrial & Mining Corporation 804,000,000.00
Chemicals
CIP Chemical Industries of the Philippines 2,162,286,210.00
COAT Chemrez Technologies, Inc. 3,996,825,239.04
EURO Euro-Med Laboratories Philippines, Inc. 6,168,210,810.00
LMG LMG Chemicals Corporation 582,567,969.76
MAH Metro Alliance Holdings & Equities Corporation 231,428,571.36
MAHB Metro Alliance Holdings & Equities Corporation
MCP Melco Crown (Philippines) Resorts Corporation 60,551,829,144.00
MVC Mabuhay Vinyl Corporation 1,454,880,675.60
PPC Pryce Corporation 500,000,000.00
Electrical Components & Equipment
CHIPS Cirtek Holdings Philippines Corporation 4,063,155,983.00
CIC Concepcion Industrial Corporation 6,400,478,049.00
GREEN Greenergy Holdings Incorporated 1,902,481,421.50
IMI Integrated Micro-Electronics, Inc. 4,085,195,220.00
ION Ionics, Inc. 312,649,872.08
PMPC Panasonic Manufacturing Philippines Corporation 2,743,439,949.80
Other Industrials
FYN Filsyn Corporation 783,735,491.00
FYNB Filsyn Corporation
PCP Picop Resources, Inc. 867,608,465.08
SPH Splash Corporation 1,201,173,857.10
STN Steniel Manufacturing Corporation 260,000,000.00
Holding Firms Sector
AAA Asia Amalgamated Holdings Corporation 1,599,999,962.00
ABA AbaCore Capital Holdings, Inc 1,592,967,014.50
AC Ayala Corporation 310,501,407,706.00
AEV Aboitiz Equity Ventures, Inc. 301,218,107,835.55
AGI Alliance Global Group, Inc. 264,961,561,858.20
ANS A. Soriano Corporation 16,725,000,000.00
APO Anglo Philippine Holdings Corporation 2,248,449,648.74
ATN ATN Holdings, Inc. 570,700,000.00
47

ATNB ATN Holdings, Inc.


BH BHI Holdings, Inc. 274,992,850.00
COSCO Cosco Capital, Inc. 65,092,266,727.56
DMC DMCI Holdings, Inc. 148,707,664,000.00
FC Fil-Estate Corporation 999,850,000.00
FDC Filinvest Development Corporation 40,996,885,542.80
FJP F & J Prince Holdings Corporation 1,687,545,991.55
FJPB F & J Prince Holdings Corporation
FPI Forum Pacific, Inc. 399,050,684.38
GTCAP GT Capital Holdings, Inc. 134,559,600,000.00
HI House of Investments, Inc. 3,806,241,958.26
JGS JG Summit Holdings, Inc. 270,512,738,377.35
JOH Jolliville Holdings Corporation 1,632,700,000.00
KPH Keppel Philippines Holdings, Inc. 297,122,495.50
KPHB Keppel Philippines Holdings, Inc.
LIHC Lodestar Investment Holdings Corporation 466,200,000.00
LPZ Lopez Holdings Corporation 18,353,276,784.00
MARC Marcventures Holdings, Inc. 5,373,007,867.05
MHC Mabuhay Holdings Corporation 708,000,000.00
MIC MineralesIndustrias Corporation 3,553,500,000.00
MJIC MJC Investments Corporation 8,126,996,016.75
MPI Metro Pacific Investments Corporation 112,428,426,608.64
PA Pacifica, Inc. 1,320,000,000.00
POPI Prime Orion Philippines, Inc. 946,859,753.20
PRIM Prime Media Holdings, Inc. 576,845,211.13
REG Republic Glass Holdings Corporation 1,773,370,643.20
SGI Solid Group, Inc. 2,149,419,560.00
SGP Synergy Grid & Development Phils., Inc. 19,291,740,000.00
SINO Sinophil Corporation 2,140,373,700.00
SM SM Investments Corporation 566,149,582,548.00
SOC South China Resources, Inc. 983,093,419.12
SPM Seafront Resources Corporation 244,500,000.00
UNI Unioil Resources & Holdings Company, Inc. 255,919,156.30
WIN Wellex Industries, Inc. 638,026,993.50
ZHI Zeus Holdings, Inc. 807,428,218.07
Property Sector
ALCO Arthaland Corporation 1,026,392,373.41
ALHI Anchor Land Holdings, Inc. 14,664,014,100.00
ALI Ayala Land, Inc. 350,788,843,622.25
ALPHA Alphaland Corporation 45,639,414,073.00
ARA Araneta Properties, Inc. 2,279,220,702.20
BEL Belle Corporation 51,952,163,371.08
BRN A Brown Company, Inc. 1,732,865,522.00
48

CDC Cityland Development Corporation 3,537,922,328.72


CEI Crown Equities, Inc. 1,060,799,996.88
CHI Cebu Holdings, Inc. 11,002,021,859.79
CPG Century Properties Group Inc. 12,784,578,875.64
CPV Cebu Property Venture & Development Corporation 4,776,978,000.00
CPVB Cebu Property Venture & Development Corporation
CYBR Cyber Bay Corporation 3,539,577,003.56
ELI Empire East Land Holdings, Inc. 13,502,103,233.64
EVER Ever-Gotesco Resources & Holdings, Inc. 1,050,000,000.00
FLI Filinvest Land, Inc. 34,192,160,903.46
GERI Global-Estate Resorts, Inc. 14,831,100,000.00
GO Gotesco Land, Inc. 180,800,944.93
GOB Gotesco Land, Inc.
HOUSE 8990 Holdings, Inc. 32,544,074,643.30
IRC IRC Properties, Inc. 1,349,850,101.40
KEP Keppel Philippines Properties, Inc. 822,720,920.00
LAND City & Land Developers, Inc. 1,654,950,419.90
MC Marsteel Consolidated, Inc. 336,050,400.00
MCB Marsteel Consolidated, Inc.
MEG Megaworld Corporation 103,565,010,203.28
MRC MRC Allied, Inc. 604,398,787.23
PHES Philippine Estates Corporation 527,625,687.95
PMT Primetown Property Group, Inc. 320,354,880.00
PRMX Primex Corporation 796,466,665.80
RLC Robinsons Land Corporation 81,712,860,472.60
RLT Philippine Realty and Holdings Corporation 2,141,211,334.55
ROCK Rockwell Land Corporation 9,113,975,675.02
SHNG Shang Properties, Inc. 15,578,464,058.49
SLI Sta. Lucia Land, Inc. 6,261,941,000.00
SMPH SM Prime Holdings, Inc. 408,361,692,147.48
STR Starmalls, Inc. 30,502,051,781.10
SUN Suntrust Home Developers, Inc. 2,002,500,000.00
Philippine Tobacco Flue-Curing and Redrying
TFC Corporation 805,000,000.00
UW Uniwide Holdings, Inc. 346,560,813.36
VLL Vista Land &Lifescapes, Inc. 44,401,451,192.80
Services Sector
Media
ABS ABS-CBN Corporation 27,821,401,183.40
GMA7 GMA Network, Inc. 27,560,585,400.00
MB Manila Bulletin Publishing Corporation 2,125,245,535.54
MBC Manila Broadcasting Company 1,328,853,259.80
Telecommunications
49

GLO Globe Telecom, Inc. 217,435,833,000.00


LIB Liberty Telecoms Holdings, Inc. 2,548,503,165.13
PTT Philippine Telegraph and Telephone Corporation 263,999,580.24
TEL Philippine Long Distance Telephone Company 576,004,696,150.00
Information Technology
DFNN DFNN, Inc. 825,000,000.00
IMP Imperial Resources, Inc. 3,159,000,000.00
IMPB Imperial Resources, Inc.
IS Island Information & Technology, Inc. 141,686,711.87
ISM ISM Communications Corporation 3,487,513,391.18
MG Millennium Global Holdings, Inc. 786,250,000.00
NXT Nextstage, Inc. 363,603,240.49
TBGI Transpacific Broadband Group International, Inc. 465,321,213.00
WEB Philweb Corporation 12,864,863,069.72
YEHEY Yehey! Corporation 328,040,000.00
Transportation Services
2GO 2GO Group, Inc. 4,158,431,880.00
ATI Asian Terminals, Inc. 22,000,000,000.00
CEB Cebu Air, Inc. 28,388,913,510.50
ICT International Container Terminal Services, Inc. 207,460,386,720.00
LSC Lorenzo Shipping Corporation 732,127,771.32
MAC MacroAsia Corporation 4,871,965,550.00
PAL PAL Holdings, Inc. 148,522,342,334.08
TUGS Harbor Star Shipping Services, Inc. 732,338,681.80
Hotel & Leisure
ACE Acesite (Philippines) Hotel Corporation 358,537,420.80
BHI Boulevard Holdings, Inc. 1,716,000,000.00
DWC Discovery World Corporation 1,552,480,000.00
GPH Grand Plaza Hotel Corporation 2,461,599,855.00
WPI Waterfront Philippines, Inc. 887,142,072.32
Education
CEU Centro Escolar University 4,029,523,808.00
FEU Far Eastern University, Inc. 15,159,358,512.00
IPO iPeople, Inc. 8,987,198,652.00
STI STI Education Systems Holdings, Inc. 6,339,076,431.36
Casinos & Gaming
BCOR Berjaya Philippines, Inc. 24,745,300,873.50
BLOOM Bloomberry Resorts Corporation 91,178,182,787.16
EG IP E-Game Ventures, Inc. 390,000,000.00
LOTO Pacific Online Systems Corporation 4,310,796,870.00
LR Leisure & Resorts World Corporation 7,319,100,323.20
MJC Manila Jockey Club, Inc. 1,944,887,143.80
50

PHA Premiere Horizon Alliance Corporation 547,077,600.00


PRC Philippine Racing Club, Inc. 5,410,597,629.00
RWM Travellers International Hotel Group, Inc. 164,153,225,014.00
Retail
CAL Calata Corporation 1,223,411,800.00
PGOLD Puregold Price Club, Inc. 104,846,802,787.40
RRHI Robinsons Retail Holdings, Inc. 76,452,000,000.00
SEVN Philippine Seven Corporation 45,155,879,315.50
Other Services
APC APC Group, Inc. 4,652,606,478.14
ECP Easycall Communications Philippines, Inc. 393,000,000.00
NOW Now Corporation 533,497,731.75
PAX Paxys, Inc. 2,538,262,053.86
PHC Philcomsat Holdings Corporation 1,394,947,755.60
PORT Globalport 900, Inc. 17,248,388,000.00
Mining & Oil Sector
Mining
AB Atok-Big Wedge Company, Inc. 45,810,000,000.00
APX Apex Mining Company, Inc. 3,251,433,015.36
AR Abra Mining and Industrial Corporation 585,430,024.24
Atlas Consolidated Mining and Development
AT Corporation 30,186,801,811.80
BC Benguet Corporation 1,184,199,267.28
BCB Benguet Corporation
COAL Coal Asia Holdings Incorporated 3,360,000,003.36
CPM Century Peak Metals Holdings Corporation 1,410,165,225.00
DIZ Dizon Copper Silver Mines, Inc. 403,189,103.70
GEO GEOGRACE Resources Philippines, Inc. 1,400,000,000.00
LC Lepanto Consolidated Mining Company 13,478,405,792.53
LCB Lepanto Consolidated Mining Company
MA Manila Mining Corporation 2,587,283,103.82
MAB Manila Mining Corporation
NI NiHAO Mineral Resources International, Inc. 1,396,890,000.00
NIKL Nickel Asia Corporation 38,291,222,044.00
OM Omico Corporation 383,418,510.65
ORE Oriental Peninsula Resources Group, Inc. 2,032,800,007.00
PX Philex Mining Corporation 39,101,008,858.56
SCC Semirara Mining Corporation 102,600,000,000.00
UPM United Paragon Mining Corporation 2,482,490,572.26
Oil
BSC Basic Energy Corporation 586,093,134.78
OPM Oriental Petroleum and Minerals Corporation 3,480,000,000.00
51

OPMB Oriental Petroleum and Minerals Corporation


OV The Philodrill Corporation 6,715,408,187.53
PERC PetroEnergy Resources Corporation 1,484,127,272.40
PXP Philex Petroleum Corporation 13,209,000,000.00
Preferred
ABC Allied Banking Corporation 50,000,000.00
SME
MFIN Makati Finance Corporation 699,465,270.00
RPL iRipple, Inc. 171,259,165.00
ETF Sector
ETF-Equity
First Metro Philippine Equity Exchange Traded Fund,
FMETF Inc. 754,450,000.00
52

Appendix B: Certification of the Number of Publicly Listed Companies


53

Appendix C: List of Publicly Listed Companies Used as Samples

Number Code Company


1 2GO 2GO Group, Inc.
2 AB Atok-Big Wedge Company, Inc.
3 ABG Asiabest Group International Inc.
4 ABS ABS-CBN Corporation
5 ACR Alsons Consolidated Resources, Inc.
6 AEV Aboitiz Equity Ventures, Inc.
7 AGI Alliance Global Group, Inc.
8 ALCO Arthaland Corporation
9 ALHI Anchor Land Holdings, Inc.
10 ALI Ayala Land, Inc.
11 ANI AgriNurture, Inc.
12 AP Aboitiz Power Corporation
13 APC APC Group, Inc.
14 APO Anglo Philippine Holdings Corporation
15 BC Benguet Corporation
16 BDO BDO Unibank, Inc.
17 BH BHI Holdings, Inc.
18 BLOOM Bloomberry Resorts Corporation
19 BPI Bank of the Philippine Islands
20 BSC Basic Energy Corporation
21 CA Concrete Aggregates Corporation
22 CAL Calata Corporation
23 CDC Cityland Development Corporation
24 CEB Cebu Air, Inc.
25 CEI Crown Equities, Inc.
26 CHIB China Banking Corporation
27 CHIPS Cirtek Holdings Philippines Corporation
28 CIP Chemical Industries of the Philippines
29 COL COL Financial Group, Inc.
30 COSCO Cosco Capital, Inc.
31 CPG Century Properties Group Inc.
Cebu Property Venture & Development
32 CPV Corporation
33 CSB Citystate Savings Bank, Inc.
34 DAVIN Da Vinci Capital Holdings, Inc.
35 DFNN DFNN, Inc.
36 DIZ Dizon Copper Silver Mines, Inc.
54

37 DMC DMCI Holdings, Inc.


38 ECP Easycall Communications Philippines, Inc.
39 EDC Energy Development Corporation
40 EEI EEI Corporation
41 EG IP E-Game Ventures, Inc.
42 ELI Empire East Land Holdings, Inc.
43 EMP Emperador Inc.
44 EURO Euro-Med Laboratories Philippines, Inc.
45 EVER Ever-Gotesco Resources & Holdings, Inc.
46 FDC Filinvest Development Corporation
47 FED Federal Resources Investment Group, Inc.
48 FFI Filipino Fund, Inc.
49 FGEN First Gen Corporation
50 FLI Filinvest Land, Inc.
51 FPH First Philippine Holdings Corporation
52 FPI Forum Pacific, Inc.
53 GEO GEOGRACE Resources Philippines, Inc.
54 GERI Global-Estate Resorts, Inc.
55 GLO Globe Telecom, Inc.
56 GMA7 GMA Network, Inc.
57 GSMI Ginebra San Miguel, Inc.
58 GTCAP GT Capital Holdings, Inc.
59 HI House of Investments, Inc.
60 HLCM Holcim Philippines, Inc.
61 HOUSE 8990 Holdings, Inc.
62 I I-Remit, Inc.
63 ICT International Container Terminal Services, Inc.
64 IPO iPeople, Inc.
65 IRC IRC Properties, Inc.
66 IS Island Information & Technology, Inc.
67 ISM ISM Communications Corporation
68 JOH Jolliville Holdings Corporation
69 KEP Keppel Philippines Properties, Inc.
70 KPH Keppel Philippines Holdings, Inc.
71 LAND City & Land Developers, Inc.
72 LFM Liberty Flour Mills, Inc.
73 LIB Liberty Telecoms Holdings, Inc.
74 LIHC Lodestar Investment Holdings Corporation
75 LOTO Pacific Online Systems Corporation
76 LPZ Lopez Holdings Corporation
55

77 LR Leisure & Resorts World Corporation


78 LRI Lafarge Republic, Inc.
79 LSC Lorenzo Shipping Corporation
80 LTG LT Group, Inc.
81 MA Manila Mining Corporation
82 MAC MacroAsia Corporation
83 MARC Marcventures Holdings, Inc.
84 MB Manila Bulletin Publishing Corporation
85 MBC Manila Broadcasting Company
86 MBT Metropolitan Bank & Trust Company
87 MCP Melco Crown (Philippines) Resorts Corporation
88 MED Medco Holdings, Inc.
89 MEG Megaworld Corporation
90 MFIN Makati Finance Corporation
91 MHC Mabuhay Holdings Corporation
92 MIC MineralesIndustrias Corporation
93 MJC Manila Jockey Club, Inc.
94 MJIC MJC Investments Corporation
95 MPI Metro Pacific Investments Corporation
96 MVC Mabuhay Vinyl Corporation
97 MWC Manila Water Company, Inc.
98 MWIDE Megawide Construction Corporation
99 NI NiHAO Mineral Resources International, Inc.
100 NOW Now Corporation
National Reinsurance Corporation of the
101 NRCP Philippines
102 OM Omico Corporation
103 OPM Oriental Petroleum and Minerals Corporation
104 ORE Oriental Peninsula Resources Group, Inc.
105 OV The Philodrill Corporation
106 PAX Paxys, Inc.
107 PBC Philippine Bank of Communications
108 PCOR Petron Corporation
109 PERC PetroEnergy Resources Corporation
110 PGOLD Puregold Price Club, Inc.
111 PHC Philcomsat Holdings Corporation
112 PHES Philippine Estates Corporation
113 PHN Phinma Corporation
114 PNB Philippine National Bank
115 PNX Phoenix Petroleum Philippines, Inc.
116 PPC Pryce Corporation
56

117 PSB Philippine Savings Bank


118 PTC Philippine Trust Company
119 RCB Rizal Commercial Banking Corporation
120 REG Republic Glass Holdings Corporation
121 RFM RFM Corporation
122 RLC Robinsons Land Corporation
123 RLT Philippine Realty and Holdings Corporation
124 ROCK Rockwell Land Corporation
125 ROX Roxas Holdings, Inc.
126 SCC Semirara Mining Corporation
127 SECB Security Bank Corporation
128 SEVN Philippine Seven Corporation
129 SGI Solid Group, Inc.
130 SGP Synergy Grid & Development Phils., Inc.
131 SHNG Shang Properties, Inc.
132 SM SM Investments Corporation
133 SMC San Miguel Corporation
134 SPC SPC Power Corporation
135 SPH Splash Corporation
136 SPM Seafront Resources Corporation
137 SRDC Supercity Realty Development Corporation
138 STN Steniel Manufacturing Corporation
139 STR Starmalls, Inc.
140 TEL Philippine Long Distance Telephone Company
141 UBP Union Bank of the Philippines
142 UPM United Paragon Mining Corporation
143 URC Universal Robina Corporation
144 V Vantage Equities, Inc.
145 VITA Vitarich Corporation
146 VLL Vista Land &Lifescapes, Inc.
147 VUL Vulcan Industrial & Mining Corporation
148 VVT Vivant Corporation
149 WEB Philweb Corporation
150 YEHEY Yehey! Corporation
57

Appendix D: Compliance Report on Corporate Governance (PSE-CG Survey)

Appendix D.1: Template of the PSE-CG Survey


58

Appendix D.1: Scoring Guide for the PSE-CG Survey

Maximum Percentage
Score

Guideline 1: Develops and executes a sound business 4 5


strategy

Guideline 2: Establishes a well-structured and functioning 10 13


board

Guideline 3: Maintains a robust internal audit and control 5 7


system

Guideline 4: Recognizes and manages its enterprise risks 6 8

Guideline 5: Ensures the integrity of financial reports as well 8 11


as its external auditing function

Guideline 6: Respects and protects the rights of its 13 17


shareholders particularly those that belong to the minority or
non-controlling group

Guideline 7: Adopts and implements an internationally- 9 12


accepted disclosure and transparency regime

Guideline 8: Respects and protects the rights and interests 6 8


of employees, community, environment and other
stakeholders

Guideline 9: Does not engage in abusive related-party 7 9


transactions and insider trading

Guideline 10: Develops and nurtures a culture of ethics, 7 9


compliance and enforcement

Total 75 100
59

Appendix E: Interviews

Appendix E.1: Copy of the E-mail Sent to Publicly Listed Companies

Good day!

We are 5th year students from University of Santo Tomas Alfredo M. Velayo College

of Accountancy conducting a thesis entitled "The Relationship of Compliance with the

Philippine Stock Exchange Corporate Governance Guidebook and Return on Equity of

Selected Publicly Listed Companies in the Philippines for the Reporting Years 2012 and

2013".Your company is a part of our sample size, and in line with this, we would like to ask you a

few questions regarding our topic.

1. Based on your experience, what is the rationale behind the company's application

of corporate governance (CG) aside from compliance with regulatory requirements?

2. What are the factors considered in selecting CG measures and implementation?

3. Among these factors, which is of most priority?

4. Is Return on Equity (RoE) a factor?

Your response will be highly appreciated, as it will be instrumental for the completion of

our study, a necessary requirement for our graduation this May 2015. We hope you can reply by

March 31, 2015 to give us ample time to include the interpretation of your answers in our research.

Thank you, and have a nice day.

Many thanks,

Dyan Merz Tolentino


60

Appendix E.2: Transcript of E-mail Interview with the Philippine Long Distance Telephone (PLDT)

Company

Based on your experience, what is the rationale behind the company's application of

corporate governance (CG) aside from compliance with regulatory requirements?

CG, when conducted and observed soundly, brings about business advantages that

enhance a companys bottom line. First, a recognized and credible reputation for sound CG has

been found to have a positive correlation to share price. This means that share price rises as a

companys reputation for CG improves. Second, good CG also has an impact on a Companys

credit rating since credit rating agencies also look at CG measures that have been implemented

in order to determine a companys credit worthiness. What this means is that a companys access

to capital through borrowing is made easier.

In addition, underpinning typical CG measures are the values of integrity, transparency,

accountability and fairness. When observed, these values promote efficient and honest use of

resources, whether financial, human, information or otherwise, which in turn leads to appreciable

monetary gains for the company. It is expected that sound CG encourages the avoidance of

conflicts of interest at all levels of the company which leads to responsible and effective

performance of duties and functions of personnel. It has also been observed that companies that

practice sound CG gain the trust of its suppliers and vendors, are able to retain talent for longer

periods of time, and retain and grow their customer base, all of which lead to indubitable

advantages for the business of the company.

What are the factors considered in selecting CG measures and implementation?


61

With regard to CG measures that are required by law or administrative issuance, there is

no discretion given to companies and the only option is to comply. For example, there are rules

imposed on the number and/or percentage of independent directors, establishment of board

committees, required disclosures, required policies (i.e. CG Manual), training, etc. In all of these,

companies must comply. There are however, certain areas of CG where some discretion is given

to companies to determine what are the best measures to adopt and implement. The usual criteria

used to determine how to observe and implement would be the following: ability to contribute to

the development of the right corporate culture, relevant and/or high impact risks, business

opportunities and the ability to create value for shareholders, meeting responsibilities to

stakeholders, applicability to the companys context and present structures, etc.

Among these factors, which is of most priority?

It would be difficult to identify a particular factor. All of the factors cited above should be

considered in the light of the companys vision, its objectives as well as its current situation and

plans for continued and sustained growth.

Is Return on Equity (RoE) a factor?

If by ROE one refers to net income returned as a percentage of shareholders equity,

then the answer would be yes but only to a certain extent. This is because shareholders are an

important stakeholder group and should be given every opportunity to make a fair return from

their investment. However, it would be difficult to trace which portion of the ROE is due to sound

CG practices. ROE is influenced also by many other factors and risks. A companys CG practices,

in the end, serve to enhance, but not determine ROE. Stated otherwise, a company should attend
62

to equally important aspects of the business in terms of strategy, execution, research and product

development, risk management, etc.

Appendix E.3: Transcript of E-mail Interview with the Aboitiz Equity Ventures, Inc. (AEV)

Based on your experience, what is the rationale behind the company's application of

corporate governance (CG) aside from compliance with regulatory requirements?

Aboitiz Equity Ventures (AEV) adopts corporate governance principles because it firmly

believes that good governance equates to good business, not just in terms of profit but more

importantly on the company's resulting relationships with its shareholders, customers, and other

stakeholders. AEV looks at corporate governance as an essential component of sound strategic

business management, and hence adopts a long term view in adopting CG practices. This is in

keeping with AEV's mission "To create long-term value for all its stakeholders".

From these relationships, AEV builds good reputation and trust which are paramount in

the way AEV does its business. These core values have been passed on from generation to

generation of the Aboitiz family and Aboitiz employees which started with Don Ramon Aboitiz, the

patriarch of the Aboitiz family.

What are the factors considered in selecting CG measures and implementation?

The following factors come into play (in no particular order) in adopting CG practices:

1. Company core values (Integrity, Teamwork, Responsibility, and Innovation)

2. CG best practices, whether local or foreign. AEV actively benchmarks its practices

with the CG practices of comparable local and foreign companies, and it also
63

participates in the ASEAN CG Scorecard assessment to benchmark its practices

with ASEAN's best practices.

3. Regulatory requirements

As with other companies, AEV follows the principle of "tone at the top", meaning that the

AEV Board of Directors, upon their appreciation of the necessity for the company to apply a

particular CG practice, gives its mandate for its adoption. To make this adoption process effective,

the Board is constantly updated of evolving corporate governance practices, both local and

abroad, through the Board Corporate Governance Committee.

Among these factors, which is of most priority?

Although it's difficult to pinpoint particular factors which contribute the most in AEV's

adoption of CG practices, as it is more likely a combination of the different factors given above,

we would have to say that AEV's core values are the prime consideration. Otherwise stated, CG

principles which are aligned to the company's core values have a good chance of being adopted.

AEV does not adopt CG principles just for bragging rights, rather the adoption must make

business sense for the company.

Is Return on Equity (RoE) a factor?

ROE is not a factor we look at when adopting or improving AEV's CG practices, although

good ROE may be a necessary consequence of the company's adoption of CG principles.

Appendix E.4: Transcript of Oral Interview with Mr. Hilario Tan

Mr. Hilario Tan is a Senior Financial Management professional with over 25 years of

international experience in corporate financial operations management, compliance and


64

corporate governance, finance and accounting, capital management, and setting up management

reporting systems. He has been the Chief Financial Officer of Abzu Gold Ltd since December

2014, and has been one of its Directors since February 16, 2015. He has worked in various

industries such as Fast Moving Consumer Goods (FMCG), Chemicals Manufacturing, Financial

Services, and Academe. Mr. Tan is an Atlantic Gulf and Pacific Co. Scholarship Awardee from

1991 to 1993; Master Degree holder in Business Management from Asian Institute Management;

third-place in October 1996 CPA Licensure examination; and Magna cum Laude in Bachelor of

Science in Commerce, Major in Accounting from Chang Kai Shek College from 1982 to 1986. All

information are taken from Mr. Tans LinkedIn and Bloomberg profiles.

Why can we not use the instruments used by studies conducted abroad to measure CG in

our study of Philippine companies?

Iba yung kanilang regulatory environment. Mag-iiba yung dynamics ng corporate

governance, so you cannot just copy. For example, sa US, marami silang laws to protect minority

shareholders.May mga laws sila for example, yung Sarbanes-Oxley Law wala tayo nun e. And

because of that, kung kinopya mo lang sya, it doesnt follow na kung ano yung magiging result

niya, it will work here.

Is RoE one of the considerations in implementing CG policies?

Wala namang ganoong department sa mga companies e. Even for example, sa board of

directors, may audit committee. Sinong pauupuin mo sa audit committee? Eh karamihan ng part

ng BOD ay anak ng may-ari, wala namang muwang sa accountancy or internal audit or external

audit. So may uupo doong isa, siguro, retired CFO, pero siya lang magsasalita doon kasi siya

lang naman ang nakaka intindi ng accounting side. Ang alam ko na may effect on the corporate
65

governance side pagdating sa talagang company, nang mabawasan ang irregularities, is a strong

internal audit team. Yon. Kasi ang internal audit team can focus on financial and operational audit.

Sa PNG, ang kanilang internal audit, ang focus lang nila doon, ay business or operational audit,

hindi financial audit. Kasi ang habol mo doon ay operational effectiveness and efficiency na eh.

Tapos tinitignan mo pa ay business sense, hindi accounting sense. Yun yung advantage doon.

Ang talagang ano diyan, kung titignan mo si SM, ang una niyang CFO, former audit partner

ng SGV na nag-aaudit sa SM, si Shaw. After nya, ang pumalit sakanya, galing ding SGV, tapos

ini-strengthen nila yung accounting side atsaka internal audit side. Si Metrobank din, strong ang

kanyang internal audit team. Ang internal audit team nya, lahat galling sa SGV yun former

auditor nila. Yung mga malalaking companies ngayon na magaganda, ang iniistrengthen nila,

ayun yung internal audit. Kasi yun ang mas malaking impact. Pero ang hindi pa masyadong naii-

strenghten ng companies is yung management accounting side. Yung management reporting.

Yung parang ginagawan mo ng responsibility report, mga ganoon, mga variance

analysis.Maraming company weak pa doon. Kasi karamihan ng mga nagiging controller galing ng

audit firm e. Eh sa audit firm ba, ano bang gingagawa mo? Audit ka lang. Kapag lumabas ka,

financial reporting, which is, level na pang-external, not internal. So ang problema usually ng

galing audit, paglabas nya, de kahon siya. Alam niya IFRS. Pero ang importante sa labas,

business sense. Kapag ginawa mo itong activity na ito, or decision na ito, ano ang impact? Ano

ang impact sa cash flow, sa tax, yung dalawa naman madalas, atsaka yung performance

measure.

Will CG compliance affect RoE?

Ang sagot ko ay hindi. Kasi ang RoE ay really affected by business model nung company.

May business na very profitable regardless, may business model na hindi. For example, kapag
66

ikaw ay monopoly or oligopoly, monopoly ka like Meralco, or PLDT (but PLDT is now competing

with a substitute which now makes it an oligopoly). Kung nasa monopoly or oligopoly ka, talagang

malaki kita doon, especially kung nagkukunchaba kayo, for example nag-cacartell kayo, for sure

malaki kita nyo, di ba. Kasi ilan lang kayong players. Pagdating naman dun sa competitive

industries, dog eat dog yan talaga, matira matibay. Ang point diyan talaga, ang RoE mo pwede

tumaas, kahit wala kang corporate governance.Kasi eventually ang importante naman sa RoE is

how you make profit. You can increase your RoE even if you do things that are immoral or

unethical. For example, SM ka. Si SM, majority ng tao nya, 80-90% ng tao nya, nasa agency,

hindi nya tao e, di ba. Anytime na gusto nya paalisin, lipat lang, palit lang. Now do you see na

yung kanyang ganoong practices are unethical? Di naman issue sakanila yun, ang issue, legal

ba siya? For as long as makakalusot sila sa government, sa regulatory agency, thats fine with

them. Pero kung titignan mo yung morality nung ginagawa nila, hindi, di ba. Even for example,

Banco de Oro, ganoon din. Lahat ng papasok na entry level, agency.

So ang sa akin, when you say corporate governance, whose interest are you trying to

protect? Kasi just because na pinoprotectahan ang interest ng minority, it doesnt follow na

tataasang RoE eh. Kasi ang RoE is not a function of corporate governance; it is a function of

effective execution of strategy, and it is a function of your full understanding of your business

model, how to make profit in that business model.

Can you elaborate on the clause regarding the protection of minority shareholders?

Sinabi mo kasi corporate governance. Ano ba focus mo dun? Protection of minority

shareholders or what? Kasi if protection of minority shareholders, I dont think sa Pilipinas, it

works. Kasi kung minority shareholder ka, sino nag-appoint sayo? Ang nag-a-appointng minority

shareholder, kung meron man, ay majority pa din e. And majority will not appoint minority
67

shareholder who is independent. Mangyayari nyan, they will just appoint somebody who will look

independent when in fact they are not. Kasi kapag ni-nominate kang majority tapos eventually,

kaya ka minority shareholder doon at nasa board ka, kasi ang tumulong sayo malagay doon ay

majority naman eh, hindi yung minority, kasi ang minority, sabog (kalat). Kung titignan mo naman

sa Philippines, for example, ang mga publicly listed, ang naka float lang talaga sa publicly listed,

maliit na percent lang yun. It will not even make you buy two seats at the board. So kung

maglagay man sila ng independent doon, tao yun ng majority.

Can you elaborate on the clause regarding the transparency and frequency of issuing an

audited financial statements?

Kung gaano ka-transparent. Sa Philippines naman kasi hindi ganoon ka-transparent eh.

Kapag sinab imong transparent, you mean may audited FS, right? Pero how it was treated sa

audit is another issue. Kung gusto mong sabihin na may audited FS, fine, may audited FS. But

the transparency kasi nung financial data, hindi mo yan makikita sa audited FS eh. Nasa details

yun eh. Ang details, walang access doon ang creditor, walang access dyan ang potential

investor. Kasi audited FS lang nakikita mo saka interim. But if you want to see the nitty gritty of

the business, wala yun doon.Nasa management accounting report yun. For example, anong

segment yung kumikita, anong product ang kumikita, hindi mo yun makikita sa FS. Trabaho yun

ng controller or management accountant. Tapos hindi yun accessible sa general public, sa mga

investors. Unless umuupo ka sa mga board meeting, nakikita mo part of it. But even yung nakikita

sa board meeting is high level eh. Hindi mo nakikita kung bakit ganyan yung ano, for example

bakit ganyan yung segment level information, or product level, hindi mo yun makikita sa board

level ng mga information. Yun ang problema doon. Madali kasing sabihin na transparent, pero

ang question is, ano ang transparent?


68

Can you elaborate on the clause where related parties in the Board of Directors is not

allowed?

For example, sa Philippines, ano ang pinaka-progressive growing na companies? Kung

titignan mo family-owned eh. Ayala is still family-owned. SM is still family-owned. Metrobank is

still family-owned. Puro family-owned. Bakit? Kasi sa kanila, ang tingin nila sa kanilang business

is long-term. Multi-generation. Hindi katulad nung iba na kung publicly listed sya na hindi family-

owned, walang titingin dyan sa long term. Meralco is still family-owned. Kapag tinignan mo lahat

yan, family-owned yan. Baka ang tignan mo pa RoE of publicly listed companies na family-

owned. Baka yun ang mas maganda mong tignan.Kasi, sila, ego booster din nila yun eh, parang

oh eto ang legacy ko to the future generations of my family. Kaya sa tingin ko doon ang may

correlation namataas. Siguro ang ipaliwanag mo sa ano, baka ang mas may impact pa sa RoE

yung ownership type ng publicly listed. Dapat i-segregate mo lahat ng family-owned sa not family-

owned. Kasi kung hindi family-owned yan, ang tendency diyan, may self-interest, tapos ang

interest na yan is short term. Ang goal lang nyan ay tumaas ang stocks kasi mayroon siyang

stock options, para pakinabangan na nya. Ang tignan mo diyan, is yung controlling interest ng

company. Is it one family or is it diverse? Kasi kung one family yan, papansinin mo, mas maganda

yung growth nya. Kasi talagang kontrolado yan sa loob, with all the structures.

Is it safe to assume that CG measures are done for compliance purposes only?

Yes. Kumbaga, minimum requirement sya to operate in that kind of business, on that kind

of environment.
69

Do investors check the companies compliance with the PSE-CG guidebook before

deciding to invest?

Sa akin kasi, kung yes or no yun, kung qualitative, you have to put weight on certain areas

eh. Kasi hindi lahat ng area equally weighted yan. Like kunwari, ako, tatanungin mo sa corporate

governance, sa akin, ang pinaka-importante is strong internal audit team reporting to the board.

Pero yung board dapat matino.

Kapag nag no ka ba doon, is it good or bad? Hindi naman siya necessarily good or bad.

It doesnt follow. Walang morality sa business. Karamihan ngayon sa mga companies amoral sila.

Ang mga amoral na owners, Chinese or Indian. Eh kapag tinignan mo Indian companies, Chinese

companies, ang bilis ng growth nila. Pero no morality involved. Kaya they could live with

corruption. Corrupt ang BIR, corrupt ang customs, they could live with that. So kung kailangang

maglagay, maglagay. I-budget. So ngayon kung nagmamalinis ka, di ka yayaman, di ka mag-

susucceed sa business. Ganoon din sa audit. Hindi ka mag-susucceed. Kasi kahit naman SGV

ka, may mga kliyente sa SGV, pikit mata pipirma ka eh. Yun yung problema doon.

Appendix E.5 Transcript of E-mail Interview with PSEs CG Department

E-mail from the Researchers

Good day.

We're a group conducting a thesis entitled, "The Relationship of Compliance with the

Philippine Stock Exchange Corporate Governance Guidebook and Return on Equity of

Selected Publicly Listed Companies in the Philippines for the Reporting years 2012 and

2013."

We measured the Corporate Governance (CG) by getting the percentage of compliance

of 150 companies with the CG compliance survey conducted by the PSE. Results show that the
70

mean (or average) percentage of compliance of publicly listed companies ranges from 0.90 to

0.92 for 2012 and 2013. As someone from PSE, what do you think is the verbal interpretation of

this result (highly compliant, moderately compliant, or not compliant)? In line with this, we came

across the PSE bell awards. May we ask the criteria on how you recognize each company's CG

performance?

Your response will be highly appreciated.

Many thanks,

Dyan

E-mail Response of the PSE CG Department

Hello Ms. Dyan,

Thank you for your email and your call.

As you have clarified, the 90-92% is based on the per sub-guideline self-assessment

made by publicly listed companies. As discussed with you, the 90-92% average would

translate to high compliance based on their self-assessment. Please note, however, that

these answers are subjected to internal review for purposes of the Bell Awards. For the PSE Bell

Awards criteria and process, please refer to the PSE CG Guidelines

(http://www.pse.com.ph/stockMarket/pseCorporateGovernance.html?ref=guidelines) and the

PSE Bell Awards micro-site (http://www.pse.com.ph/stockMarket/pseCorporateGovernance.html

?ref=bellAwards).

Again, thank you for your email and call. Goodluck in your thesis!
71

Thank you,

Gerard

Joseph Gerard Agustine M. Razo | Governance, Risk, and Compliance Associate | Corporate

Governance Office | The Philippine Stock Exchange, Inc.


72

Appendix F: Some Reasons for Non-Compliance to the PSE-CG Guidebook Measures

Appendix F.1: PSE-CG Guidebook Measure Number 2.3

Bloomberry Resorts Corporation (BLOOM)

DMCI Holdings, Inc. (DMC)

First Gen Corporation (FGEN)

International Container Terminal Services, Inc. (ICT)

Petron Corporation (PCOR)


73

SCC (Semirara Mining Corporation)

Universal Robina Corporation (URC)

Appendix F.2: PSE-CG Guidebook Measure Number 2.6

Aboitiz Equity Ventures, Inc. (AEV)

Bloomberry Resorts Corporation (BLOOM)

DMCI Holdings, Inc. (DMC)


74

First Gen Corporation (FGEN)

International Container Terminal Services, Inc. (ICT)

Megaworld Corporation (MEG)

Petron Corporation (PCOR)


75

Robinsons Land Corporation (RLC)

SCC (Semirara Mining Corporation)

Universal Robina Corporation (URC)

Appendix F.3:PSE-CG Guidebook Measure Number 4.4

Basic Energy Corporation (BSC)


76

DMCI Holdings, Inc. (DMC)

Empire East Land Holdings, Inc. (ELI)

Megaworld Corporation (MEG)

Puregold Price Club, Inc. (PGOLD)


77

About the Authors

RICKA ABIGAEL R. DUMELOD


EDUCATION
University of Santo Tomas 2010-2015
Bachelor of Science in Accountancy

UST High School 2010-2015


Secondary Education

MARK JAMES C. TAYSON


EDUCATION
University of Santo Tomas 2010-2015
Bachelor of Science in Accountancy

Saint Claire School 2006-2010


Secondary Education

MARC EXEQUIEL TEODORO


EDUCATION
University of Santo Tomas 2010-2015
Bachelor of Science in Accountancy
Lourdes School of Quezon City 2006-2010
Secondary Education
78

DYAN MERZ S. TOLENTINO


EDUCATION
University of Santo Tomas 2010-2015
Bachelor of Science in Accountancy
Holy Spirit Academy of Malolos 2006-2010
Secondary Education

RHONA CARLA M. TORRES


EDUCATION
University of Santo Tomas 2010- Present
Bachelor of Science in Accountancy
College of St. Catherine, Quezon City 2006- 2010
Secondary Education