A research on ownership structure and corporate governance performance indicators of Taiwanese business groups
Authors: Wan-Ying Lin, Chung-Yuan Hsu
Journal: Chiao Da Management Review. Jun. 2008, 28(1): 269-312.
Keywords: Business group; Corporate governance; Cash flow right; Voting right; Board seat-control
Abstract:
In this study of corporate governance, we examine corporate ownership structure, as well as the characteristics of different boards of
directors, by using a sample of 14 Taiwanese business groups, along with their 63 affiliated companies, either listed in the Taiwan Stock
Exchange or traded Over-the-Counter (OTC). We define the ultimate owner or owners as the entity or entities with ultimate influence over major
decisions regarding the operation, management, and allocation of company resources. We first identify the critical issues regarding measurement
of voting rights, cash flow rights, and the board of directors’ degree of independence, which are specific to corporate governance for
Taiwanese companies. Our analysis indicates that the voting rights, cash flow rights, and the ratio of board members controlled by the
ultimate owners to the board size are on average 23.45%, 10.77% and 86.81%, respectively. The average deviation ratio between cash-flow rights
and voting rights is 0.46. The number of board seats controlled by the owners is 144.27 times greater than cash-flow rights. In other words,
the ultimate owners get approximately 144 units of controlling power through one unit of capital input. The empirical results show that f
amily-controlled firms or firms with higher deviation of control from cash-flow rights are underperforming in terms of return on investment.