An Empirical Study on the Relationship between Corporate Governance and Foreign Investment in the Group Enterprises
Date Issued
2005
Date
2005
Author(s)
Wu, Meng-Chieh
DOI
zh-TW
Abstract
Abstract
In response to the trend of liberalization and globalization, the Taiwan government has gradually lifted the restrictions on foreign investment in the domestic stock market. Therefore, the trading volume and amounts of foreign investment increase significantly and the influence of foreign investors is getting more and more important.
In recent years, a series of financial scandals not only beat investors’ confidence, but also make both the practice and the academic pay much more attention to corporate governance mechanism. Thus, this research examines whether corporate governance mechanism affects foreign investors’ investment strategies.
This research uses 248 listed companies of group business in Taiwan as research examples to investigate the relationship between foreign investment and corporate governance consisting of four dimensions: ownership structure, ultimate owner’s right, monitoring mechanisms and information transparency. The ownership structure variables include the numbers of invested subsidiaries, the cost of equity investments and “whether controlling shareholders use pyramids or cross-holdings to control companies”. The ultimate owner’s right is measured by the degree of control rights deviating from cash flow right. The monitoring mechanisms variables include the share-holding percentage of the second largest shareholder, “whether the chairman and CEO are the members of controlling shareholders”, the percentage of board seats occupied by the controlling shareholders and the percentage of outside directors on the board. The transparency is measured according to 2003 information transparency and disclosures ranking results conducted by the Securities and Futures Institute.
The empirical results suggest that the numbers of invested subsidiaries and “whether controlling shareholders use pyramids or cross-holdings to control companies” are negatively related with foreign investment. Besides, the more controlling shareholders’ control rights deviate from cash flow right, the less desire foreign investors have for investment. The results also find that both the share-holding percentage of the second largest shareholder and the percentage of outside directors on the board influence foreign investors’ considerations significantly.
On the other hand, the share-holding percentage of foreign investors in the electronic industry is more than that in the non-electronic industry, and the corporate governance mechanism in the electronic industry is also better than that in the non-electronic industry. Besides, foreign investors show the same attitude to corporate governance in the electronic and non-electronic industry, but the relationship between foreign investment and corporate governance in the non-electronic industry is more significant than that in the electronic industry.
Subjects
外資
公司治理
機構投資人
股權結構
corporate governance
foreign investment
institutional investors
ownership structure
board composition
information transparency
Type
other
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