||The New Regulation of Independent Directors in Taiwan: Who Voluntarily Adds Independent Directors and Does It Work?
||Institute of International Business
In 2002, the government of Taiwan regulated that a company applied for listing the first time after 2002 must set aside three seats for independent members, and recommended that a company that went public before 2002 should voluntarily add independent directors to the board. This is the big exogenous shock to Taiwanese firms that went public before 2002, because their boards have no independent directors before new regulation and have option to voluntarily add independent directors or not . We analyze these companies to find “what characteristics of firms may affect board to voluntarily add independent directors” and “whether voluntarily adding independent directors improve firm performance” during 1999-2007. We find that firms with high Tobin’s Q, young age, low board seats controlled, large size, low debt to assets ratio are more likely to voluntarily add independent directors. However, adding independent directors cannot improve financial performance. Our results are different with previous studies that analyzing new regulation of outsiders due to special situation in Taiwan
English Abstract I
Chinese Abstract II
List of Tables V
List of Figures VI
Chapter 1 Introduction 1
1.1 Introduction 1
1.2 The Board in Taiwan 4
Chapter 2 Literature review and hypothesis 6
2.1 What characters of firm affect board to add independent directors? 6
2.2 Whether independent directors affect firm performance? 7
2.3 Endogenous problem 9
2.4 Hypothesis 10
Chapter 3 Data and Methodology 13
3.1 Data and sample selection 13
3.2 Regressions and Variables 14
Chapter 4 Empirical Results and Discussion 19
4.1 Empirical Results 19
4.2 Discussion 19
4.2.1 Factors affect firm to add independent directors 19
4.2.2 Independent directors do not affect firm performance 20
Chapter 5 Conclusion 23
List of Tables
Table 1 Financial Performance and Board Characteristics for Taiwanese Firms went public on the TSE before 2002 27
Table 2 Summary of variable definitions 28
Table 3 Regression analysis of adding independent directors 29
Table 4 Regression analysis of firm performance (Average) 31
Table 5 Regression analysis of firm performance (change) 32
List of Figures
Figure 1 Mean ROA through 1999-2007 for two mutually exclusive groups of Taiwanese industrial firms that went public on the TSE before 2002 24
Figure 2 Mean ROE through 1999-2007 for two mutually exclusive groups of Taiwanese industrial firms that went public on the TSE before 2002 24
Figure 3 Mean Tobin’s Q through 1999-2007 for two mutually exclusive groups of Taiwanese industrial firms that went public on the TSE before 2002 25
Figure 4 Mean ROA in event time for two mutually exclusive groups of Taiwanese industrial firms listed on the TSE before 2002 from 1999-2007 25
Figure 5 Mean ROE in event time for two mutually exclusive groups of Taiwanese industrial firms listed on the TSE before 2002 from 1999-2007 26
Figure 6 Mean Tobin’s Q in event time for two mutually exclusive groups of Taiwanese industrial firms listed on the TSE before 2002 from 1999-2007 26
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