Impact Factor(JCC): 0.9458- This article can be downloaded from www.bestjournals.in AN INVESTIGATION TO THE PERFORMANCE OF THE VOLUNTARY CODE OF CORPORATE GOVERNANCE IN BANGLADESH AND THE SCOPE FOR A MANDATORY ONE MOHAMMAD SOLFAIMAN 1 & MOHAMMED ALI NAUSE RUSSEL 2 1 Deputy Director of Governance Innovation Unit, Prime Minister’s Office, Bangladesh 2 Deputy Director (Research) in the Governance Innovation Unit, Prime Minister’s Office, Bangladesh ABSTRACT This study seeks to examine the performance of the current code of corporate governance in Bangladesh after eight years of its promulgation in 2006 and also examines the scope for a mandatory model of corporate governance instead of the current one since the existing literature suggests the underperformance of the current code. The study uses a likert scale questionnaire method providing scope for respondents’ personal observations. It covers a wide range of stakeholders such as managers, directors, regulators, auditors, legal professionals and small investors so that the true reflection on the performance of the code could be found. The study finds that there is a general consensus among the respondents that the current voluntary code of Bangladesh is not fulfilling the desired expectation regarding investor protection, disclosure and auditor independence. The study also finds that the judiciary of Bangladesh lacks capability to provide protection to the investors in cases of shareholder abuse. The respondents have agreed that a mandatory model of corporate governance would provide better transparency and protection. This paper adds to the existing literature by broadening the scope for further research on the performance of the corporate governance code and related issues in Bangladesh and countries with similar perspective. KEYWORDS: Corporate Governance Code, Corporate Governance, Voluntary Code, Mandatory Code INTRODUCTION Corporate scandals existed long before than those have been seen in recent times such as Enron, Tyco, WorldCom and Barings Bank (Okpara and Kabongo, 2010). Allen (2005) observes that there is a growing emphasis on corporate governance practices and models after those corporate scandals. These scandals reveal that the weak or no corporate governance of the corporations eased the way for the insiders to exploit the shareholders’ money which resulted those corporations collapse causing many of the minority shareholders lose their money (CIPE, 2008). Broadly, there are two approaches of corporate governance. The voluntary approach as practiced in the UK, based on “comply or explain” theory and the mandatory approach as practiced in the USA where compliance to the corporate governance principles is mandatory. The studies of La Porta et al (1997) and Azfar et al (1999) suggest that countries, especially which have underdeveloped or emerging stock markets, with stronger legal protection have a better functioning stock market where the minority shareholders enjoy better hedging for their investment. Developing country, such as Bangladesh is also undergoing a transitional period in terms of corporate governance and stock market functioning. BEST: International Journal of Management, Information Technology and Engineering (BEST: IJMITE) ISSN (P): 2348-0513, ISSN (E): 2454-471X, Vol. 3, Issue 4, Apr 2015, 21-36 © BEST Journals