If
return of capital is more important
than return on capital, Australia,
Hong Kong and Singapore score highly as they have the best creditors’ rights in
Asia Pacific. By contrast, Indonesia and
Philippines score poorly on a rough effective creditors’ rights index.
I
have calculated a rough effective creditor rights index (0-10) based on the
average of the legal rights index (degree to which collateral and bankruptcy
laws protect rights of borrowers and lenders) and the resolving insolvency
index based on World Bank’s Doing Business data. Although a country may have strong legal
rights, execution (as reflecting by insolvency resolution) may be quite poor
effectively diluting the legal rights (India
is a good example).
As
expected, Australia (10), Hong Kong (10) and Singapore (10) have the best
effective creditor rights in the region, and Japan (9), Korea (9) and Malaysia
(9) also score highly. As mentioned
above, India’s effective creditor rights (6) are low as weak insolvency
resolution (4) dilutes the relatively strong legal rights (8). China’s effective creditor rights (6) are
similar to India as better insolvency resolution (6) offsets relatively weak
legal rights (6). Indonesia (3) and
Philippines (3) have the weakest creditor rights in Asia according to this
data.
