An important law protecting the rights of creditors is a bankruptcy law.  Thai bankruptcy law before the crisis did not provide sufficient protection for creditors.  Because the law allowed only creditors to file bankruptcy suits, and did not recognize debtor-initiated bankruptcy declarations, the creditors bore the burden of proving a debtor’s insolvency before the court.  The law did not clearly define “insolvency”, and it was widely interpreted as having more debts than assets instead of being unable to make debt payments when they are due.  Such interpretation was difficult to prove for creditors of unlisted companies, which do not have publicly available financial statements.  For listed companies, even if they defaulted on their loans, as long as their total asset value was greater than the total amount of debts, creditors would not be able to seek redress through the bankruptcy law.  In addition, debtors seldom lost control to creditors even when they defaulted and became insolvent.  The law also made it difficult for creditors to obtain payments from bankrupt debtors because debtors had many options to stall the bankruptcy process, which could drag on for many years.  To make the matter worse, any new loans extended after the creditors had discovered the insolvency would not be eligible for repayments.

Employees
            Employees have not been involved in corporate governance of Thai companies because only a few companies offer lower-level employees stock option plans (ESOP).  Even when companies offer ESOP, employees consider the plans as monetary incentives rather than an opportunity to be involved in corporate governance.  This view is further enhanced by the cultural value of “large power distance” (Hofstede, 1980) where lower-level employees regard top executives as authoritative figures, and rarely question their decisions.  Because of such viewpoint together with inactive labor unions and minimal shareholdings of less than 1 percent, Thai employees have never been represented on the board of directors.

Institutional Investors
The role of Thai institutional investors in corporate governance has been little, if any, because of their relatively small size, short-term investment perspective, and poor corporate governance.  Thai mutual fund industry, which was established only in 1991, has mostly been concerned with short-term gains instead of playing an active role in corporate governance.  The trading by mutual funds in SET represented less than 10% of total trading before the crisis.  Some institutional investors may also have vested interest in the companies they invested.  Four executives of the oldest mutual fund in Thailand lost their professional licenses in June 1998 because the Thai SEC charged them with investing with “conflict of interest” and imprudent investment.  Pension funds’ role in corporate governance was even weaker.  Provident (retirement) funds for government workers and those in public enterprises have been established only recently in mid 1990s.

The Market for Corporate Control
The market for corporate control in Thailand has not been active, and failed to provide managers with strong incentives to perform efficiently.  Only a limited number of successful mergers/acquisitions of listed companies have taken place since the Security Exchange Act of 1992, the first legislation that stipulated rules and regulations concerning the market for corporate control.  In 1996, one year before the crisis, there were only six tender offers with a total value of 8.3 billion baht ($207 million).  Therefore, the Thai capital market did not offer a venue for imposing market discipline on corporate management.       

Financial Transparency and Disclosures
Financial transparency and disclosures are very crucial to the success of corporate governance because regulators, investors and shareholders rely on financial reports to assess corporate performance and monitor management.  The Institute of Certified Accountants and Auditors of Thailand (ICAAT), which was established in 1948, is responsible for setting both Thai accounting and auditing standards.  The ICAAT issued 31 accounting standards and 41 auditing standards during the 49 years from 1948 to 1997 before the crisis.  Nikomborirak and Tangkitvanich (1999) stated that creative accounting was very common among Thai listed companies before the crisis mainly because of the weakness in the asset valuation accounting which allowed companies to revalue their long-life fixed assets and financial assets at fair market value which was higher than historical cost.  Since the fair market value is quite subjective, many financial institutions revalued these assets so that they remained solvent accounting-wise in order to avoid intervention from the Bank of Thailand (BOT).  Thai public utility firms typically revalued these assets to inflate depreciation and operating costs in order to justify its request for a rate increase from the government.  Nikomborirak and Tangkitvanich further posited that many Thai companies had two sets of financial reports: one for top managers/majority shareholders, and the other for the public and regulators such as the Thai SEC. 

There were also weaknesses in both internal and external audits before the crisis (Nikomborirak and Tangkitvanich, 1999).  Many Thai companies had weak internal control, and some of which did not have internal audit.  To make the matter worse, external auditors were not effective watch dogs for minority shareholders because their independence was often compromised.  Thai external auditors often developed a long-term relationship with their clients, and allowed their clients to engage in creative accounting such as overstating revenues via inadequate provision for bad debts.  The auditors would then add a paragraph to their reports raising mild doubts about the circumstances in order to protect them from lawsuits, yet these doubts were not strong enough to prevent them from issuing a clean opinion (Phuvanatnaranubala, 2004b). Such auditor reports conveyed ambiguous messages which prevented the public from assessing the true financial health of Thai companies.  This ambiguity in auditor reports was due to a loophole in Thai auditing standards which did not provide specific guidelines as to when an auditor should issue a qualified opinion and an adverse opinion.  Insufficient regulatory supervision and penalties in case of negligence and violations further exacerbated the weaknesses in Thai financial reporting system