The Design of an Optimal Corporate Governance System in Taiwan

10.6292/AFPF.2011.04.04

An-Lin Chen；Che-Hao Hsiao；Lan-Feng Kao；Cheng-Shou Lu

Corporate governance ； Inside ownership ； Monitored debt ； Taiwan ； Takeover market

Advances in Financial Planning and Forecasting

4期（2011 / 03 / 01）

77 - 97

英文

The corporate governance mechanisms to alleviate agency costs arise from three primary forces: (1) aligning the manager's incentives with that of shareholders; (2) monitored debts; and (3) takeover market. In this paper, we examine the performance of Taiwan firms under various combinations of the corporate governance mechanisms to find out the design of an optimal corporate governance system in Taiwan. We find that Taiwan firms tend to align insiders' interests with that of minority shareholders to reinforce governance and that monitoring bank does not play its role in governance. Firms with insider alignment or under stronger takeover threat experience better performance, while firms under governance of bank monitoring experience worse performance. The alignment-based corporate governance system seems to be optimal in Taiwan economic environments.

1. John, K., & Kedia, S. (2006). Design of corporate governance: Monitored debt, takeovers, and ownership structure (NYU Working Paper No. CLB-06-023). New York University.
2. Claessens, S.,Djankov, S.,Lang, L.(2000).The separation of ownership and control in East Asian corporations.Journal of Financial Economics,58,81-112.
3. Demsetz, H.,Villalonga, B.(2001).Ownership structure and corporate performance.Journal of Corporate Finance,7,209-233.
4. Diamond, D. W.(1984).Financial intermediation and delegated monitoring.Review of Economic Studies,51,393-414.
5. Gompers, A.,Ishii, J.,Metrick, A.(2003).Corporate governance and equity prices.The Quarterly Journal of Economics,118,107-155.
6. Ivashina, V.,Nair, V.,Saunders, A.,Massoud, N.,Stover, R.(2009).Bank debt and corporate governance.Review of Financial Studies,22,41-77.
7. Jensen, M.(1986).Agency costs of free cash flow, corporate finance, and takeovers.American Economic Review,76,323-329.
8. Jensen, M.(1993).The modern industrial revolution and the challenge to internal control systems.Journal of Finance,48,831-880.
9. Jensen, M.,Meckling, W.(1976).Theory of the firm: Managerial behavior, agency costs and ownership structure.Journal of Financial Economics,3,305-360.
10. Jensen, M.,Ruback, R.(1983).The market for corporate control: The scientific evidence.Journal of Financial Economics,11,5-50.
11. Kao, L.,Chiou, J.,Chen, A.(2004).The agency problems, firm performance and monitoring mechanisms: The evidence from collateralized shares in Taiwan.Corporate Governance: An International Review,12,389-402.
12. Morck, R.,Shleifer, A.,Vishny, R.(1988).Management ownership and market valuation: An empirical analysis.Journal of Financial Economics,20,293-315.
13. Petersen, M.(2009).Estimating standard errors in finance panel data sets: Comparing approaches.Review of Financial Studies,22,435-480.
14. Rajan, R. G.(1992).Insiders and outsiders: The choice between informed and arm's-length debt.Journal of Finance,47,1367-1400.
15. Sharpe, S. A.(1990).Asymmetric information, bank lending, and implicit contracts: A stylized model of customer relationships.Journal of Finance,45,1069-1087.
16. Shleifer, A.,Vishny, R.(1986).Large shareholders and corporate control.Journal of Political Economy,94,461-488.
17. Stiglitz, J.,Weiss, A.(1983).Incentive effects of termination: Applications to the credit and labor markets.American Economic Review,73,912-927.

1. Tu, Chia-Jung,Su, Hong-Ching,Lin, Tyrone T.(2016).DIFFERENT FINANCIAL ANALYSES ON BOT PROJECTS WITH THE CASE OF HUALIEN HOPING INDUSTRIAL HARBOR.Advances in Financial Planning and Forecasting,7,77-89.