Essays concerning the directors of Taiwanese corporations :their turnovers and their influence on firm performance
AdvisorKelly, Wayne Gary
Nagel, L. Gregory
Highfield, J. Michael
In Essay 1, we examine the departure of independent directors among 525 Taiwanese publicly listed firms with independent directors on the board between 2002 and 2006. We find that the accounting restatements is positively associated with the number (and the rate) of departures in the firm. This result implies that deteriorating financial reporting quality is related to the departures, which is consistent with Srinivasan's (2005) finding among the U.S. firms. We also find the number (and the rate) of departures is positively associated with shares owned by controlling families. Our findings support the independent directors’ role for intense monitoring based on agency theory. The results also support Anderson and Reeb’s (2004) result based opinion that that independent directors can protect minority shareholders’ interest by hindering dominant or family shareholders’ opportunistic or expropriation behaviors. In essay 2, we examine if there are significant associations between firm performance and (1) directors’ shareholdings, (2) directors’ family shareholdings, and (3) independent directors’ career affiliations in 2,164 Taiwanese publicly listed firms between 2002 and 2006. After addressing for possible endogeneity and controlling for firm specific variables, we find a positive association between CEO’s shareholding and firm performance. Consistent with agency theory and incentive effect, this result indicates that CEOs have control over firms’ operation and have incentive to maximize firms’ value. Also, we find a negative association between firm performance and non-executive directors’ shareholdings. This result, which is consistent with the entrenchment effect, implies that the possibility of expropriating minority shareholders’ interest may increase with shares owned by non-executive directors. However, we find that the non-executive directors’ family shareholding is positively related to firm performance, which implies that non-executive directors may be motivated by their family members to improve firm value. The results also imply that the majority-minority agency problem (Villalonga and Amit, 2006) can be reduced when director’s family welfare is at stake. In addition, consistent with skill matching theory (Jovanovic, 1979), we find a positive association between independent director’s career affiliation of executive officer and firm performance, which implies that independent directors who are executives are likely to improve firm performance.