Environmental, social, and governance (ESG) has received much attention in recent years, and the operation of enterprises has also changed from the early pursuit of maximizing shareholder benefits, and further needs to incorporate the well-being of all stakeholders, even the environment and the community, into the sustainable development plan of the enterprise. However, ESG investment will inevitably increase the cost of enterprises, and extending from the current discussion of related issues affecting corporate investment in ESG, we examine ESG performance of companies at different competition levels. Based on a total of 11,265 annual data from 2015 to 2021 and relatively complete and comparative ESG evaluations, the empirical results reveal that there is a significant inverse relationship between the degree of competition in the industry and the ESG performance of the companies, which is reflected in both the samples of enterprises and industries. Further analysis from environmental, social and governance perspectives shows that the inverse relationship also has significant differences in the level, revealing that the impact on different markets may not be the same. This research provides important additional details for regulators, firms, and investors to better understand the ESG performance among firms in different industries.

This study examines the relationship between firms’ directors and officers (D&O) liability insurance and firm performance during the COVID-19 pandemic in Taiwan. It has been found that while the COVID-19 pandemic has had a negative impact on firm performance, D&O insurance indeed significantly mitigates this negative impact. Specifically, with 2,924 firm-year observations of 1,462 listed firms in Taiwan in the years of 2018 and 2020, we show that D&O insurance reduces the negative impact of the COVID-19 pandemic on net operating revenue by approximately 20 percent for insured firms. The main contribution of this article is that it provides valuable information for firms and investors by providing direct evidence that clearly shows the association between D&O insurance and firm performance during unexpected significant external shocks such as a pandemic.

This paper examines the factors influencing female board membership in Taiwan over the period from 1996 through 2017 and the potential impact of female board representation on firm performance. With 16,477 firm-year observations, our findings show that Taiwanese firms with higher board independence and institutional ownership tend to have lower female board representation. In examining performance implications, the results suggest that board gender diversity is positively associated with firm performance overall. This positive relationship is even stronger in small firms, where female directors may have more influence. In subsample analysis based on lowest and highest ultimate control ownership, we document that the positive impact of board gender diversity is mainly driven by firms that have high ultimate control ownership. Our findings suggest that, in environments with weak corporate governance, female board members may act as effective monitors, especially in smaller firms. Regulators and firms in developing economies with weak corporate governance environment should encourage gender diversity on boards.

This paper investigates whether and how female board representation will affect firms’ capital structure using a sample of 16,477 firm-year observations during the period from 2006 to 2017 obtained from Taiwan Economic Journal (TEJ). While 67% of Taiwanese firms have female directors, most firms have only one female director. We find that firms with female directors use more debt financing, particularly, more short-term debt. Our results support the notion that female board representation is associated with increased monitoring through increased use of debt, particularly short-term debt. Our results remain consistent with various robustness tests using alternative samples, measures, and methodologies.

This paper compares the effect of inside and outside board chairs on firm performance using listed family firms in Taiwan from 2000 to 2018. We use Tobin’s Q and Return on Assets to measure firm valuation and operating performance. Family firms with an inside board chair exhibit undervaluation but better operating performance compared to family firms with an outside board chair. However, these results are nuanced and complex, with board independence counteracting on inside board chair. The results are robust using different samples and performance measures.

We study the relationship between directors’ liability insurance and board meeting attendance. We find that directors’ liability insurance and board meeting attendance are positively associated. This suggests that directors’ liability insurance may actually serve a governance role because an insurer definitely has incentives to thoroughly scrutinize the insured. As a result, director’s board meeting attendance rate increases because more monitoring of directors leads to more responsible behaviors of directors. With 98,524 yearly observations at the director level and 8,968 yearly observations at the firm level of listed firms in Taiwan during the period from 2008 to 2015, our empirical findings suggest that, on average, the board meeting attendance rate of insured firms is 2.9 percent higher than that of uninsured firms.

We examine the association between directors’ liability insurance and investment-cash flow sensitivity with listed firms in Taiwan. We find that directors’ liability insurance increases the investment-cash flow sensitivity. Specifically, insured firms are more likely to have excessive investment than uninsured firms given the same level of cash flow. This is the result of managerial opportunistic behaviors fueled by moral hazard inherent in directors’ liability insurance. Although managerial opportunism could certainly increase the likelihood of corporate wrongdoing, our results show that it could be mitigated by having improved regulation or corporate governance.

Corporate Ownership Structure and Cost of Raising Capital for Seasoned Equity Offerings Jang-Shee Barry Lin, Bingsheng Yi, Chia-Wei Chen, Yi Ming Zheng Abstract This paper examines the differences in announcement effects among Combined, Primary, and Secondary SEOs. Earlier studies suggest that primary SEOs might signal stock over-pricing, while secondary SEOs might increase misalignment of interests between insiders and shareholders. Theoretically, combined SEO might experience the negative incentive effects from both the primary and secondary SEOs. However, the empirical result is curious. We find that Primary SEO suffers the most negative 3-day cumulative abnormal returns (CAR) upon announcement, followed by Combined SEOs, while Secondary SEOs experience the smallest, but statistically significant negative 3-day CAR. To seek some explanation for this curious empirical result, we investigate the patterns of ownership among the three types of SEOs. Insider ownership is highest for combined SEO, while institutional ownership is highest for the secondary issues, with block ownership also highest for the combined SEOs. We argue that such differences in ownership structure at least provide some explanation to the reason why combined SEOs are not perceived to exhibit the negative incentive effects associated with both primary and secondary SEOs. Full Text: PDF DOI: 10.15640/jfbm.v7n1a1

Abstract Using a sample of 5,752 Taiwanese firm-year observations over the 2008 to 2012 period, we examine whether and how the existence of D&O insurance may affect firm performance. Our results suggest that whether to purchase D&O insurance is an endogenous corporate behavior, D&O insurance is not significantly related to firm performance. In addition, we find that firms with higher cash ratio, larger and more independent board are more likely to purchase the D&O insurance, while older firms are less likely to buy the D&O insurance. Our study implies that the government should not require firms to buy the D&O insurance. Instead, government should allow firms themselves to decide whether they optimally should purchase D&O insurance or not based on each firm’s particular circumstances. Firms should also not just simply follow their peers to buy the D&O insurance. They should carefully compare the benefits and costs of the D&O insurance based on their own situations, and only buy the insurance when the benefits exceed the costs.

In this study, we examine whether directors’ and officers’ legal liabilities affect their choices of different means of earnings management. We focus on listed firms in Taiwan, where information on directors’ and officers’ liability insurance is publicly available. Consistent with prior studies, we find that insured firms are more likely to use accrual-based earnings management. However, we demonstrate that the level of overall earnings management is marginally lower for insured firms because they rely less on costly real earnings management. Our findings suggest that carrying directors’ and officers’ liability insurance may, to some extent, mitigate costs resulting from earnings management.

While legally considered the residual interest, equity holders are often given a very small share of the liquidation value of a bankrupt corporation, even when liquidation value does not cover all other claims with higher priority. Such expected residual value for equity holders can lead to changed corporate investment incentive which counteracts the well-documented sub-optimal operation for a firm in financial distress. This paper constructs a model illustrating the agency problem in sub-optimal investment of a firm in financial distress and how court action in compensating equity restores the proper incentive. Such court action that violates the priority rule is ex ante rational and result in higher social benefit, even though it seems expost unfair.

The fundamental idea of directors' and officers' (D&O) liability insurance is to provide liability protection to boards of directors and executive officers against accusations of wrongful acts in their capacity. This paper shows that although directors' compensation and firm performance are positively correlated, D&O insurance significantly weakens this positive relationship. Therefore, instead of providing positive incentive to boards of directors, D&O insurance may actually worsen the agency problem, which is very different from the essential idea and purpose of implementing this insurance. Specifically, with 5619 firm-year observations of 1236 listed firms in Taiwan during the period from 2008 to 2012, we show that D&O insurance reduces the sensitivity of directors' compensation to firm performance by approximately 42% for the insured firms. As a result, instead of alleviating agency problem, D&O insurance actually increases firms' agency costs. Our results are robust to alternative measures of directors' compensation, alternative measures of D&O insurance, firms' corporate governance quality, firm size, firm risk, industry characteristics, CEO's power, and different sample selections.

Dissecting a Company’s Innovative Capabilities and Strategic Position in a Knowledge Economy Robert Pech, Barry Lin, Bingsheng Yi, Chia-Wei Chen Abstract Innovation is critical to the long-term survival for any company in the knowledge economy. However, while many studies highlight the importance of companies’ innovative capabilities, a practical conceptual mapping with valuation measures has not been clearly demonstrated in the literature. Therefore, this paper proposes a formal conceptual model for evaluating a company’s innovative capability based on two dimensions that have been proposed in the literature so far. In addition, our multiplicative innovative value model incorporates a third factor that captures the critical internal “knowledge transfer” capability acting as the catalyst between a firm’s R&D innovation capacity and a firm’s capacity to generate value in the market place. This factor highlights the interaction and inter-connectedness between the two critical dimensions in terms of the success of a company’s innovation: invention and commercialization. We provide a practical and useful mapping for locating a firm in terms of its position in strategic innovation. Boards, managers and consultants pursuing a successful innovation strategy can use this map to identify their future strategic innovation trajectory based a firm’s current and desired position on this map. Thus we contribute to the literature and practice of both innovation and strategy. Full Text: PDF DOI: 10.15640/smq.v3n3a5

ABSTRACT We examine how Taiwan stock market reacted to the news on Nov 5th, 2010 on the passage of a new legislation requiring all firms with stocks traded in Taiwan Stock Exchange or OTC to set up a compensation committee within one year period. We also investigate factors that may affect the market reaction. Our study contributes to the limited and inconclusive research on the effectiveness of compensation committee. We find Taiwan stock market reacted negatively on the announcement of the mandatory setup of compensation committee in the board of directors. All the mean (median) abnormal and cumulative abnormal returns around the announcement date are significantly negative. For example, the abnormal return on the announcement date is -0.27%, the three-day cumulative abnormal return is -1.19%, both are significant at 1% level. Such results suggest that, in general, investors in Taiwan do not believe that the adoption of compensation committee in Taiwan helps to protect shareholders benefits. The multiple regression results show that director compensation has significantly positive impact on the abnormal returns, while board independence is negatively related to market reaction. Keywords Market Reaction, Compensation Committee, Corporate Governance, Director

We examine the relation between the disclosure of Directors’ & Officers’ (D&O) Liability insurance and the variability of firm performance. Our results show D&O insurance is positively correlated with the variability of firm performance. Specifically, the evidence shows a one percent increment in D&O insurance coverage will lead to a 0.31, 30, and 0.0008 percent increase in the variability of corporate performance measured in monthly stock returns, annual accounting returns on assets (ROA), and Tobin’s Q respectively. Therefore, instead of reducing risk, the findings of this paper suggest D&O insurance may actually increase firm risk, which is very different from the essential purpose of implementing this insurance

Following the increasing number of corporate wrongdoings, directors' and officers' liability (D&O) insurance, ideally designed to protect shareholder wealth, has attracted increasing attention from both scholars and practitioners. This insurance may enhance the function of the board and reduce conservatism. However, moral hazard problems may undermine the incentive for board monitoring and hence induce managers to pursue their own interests at the expense of shareholder wealth. Analyzing 129 listed firms announced to be acquired during the period from 2008 to 2010, the empirical findings indicate that target firms carrying D&O insurance tend to suffer lower cumulative abnormal returns (CARs). Moreover, the difference remains significant when alternative approaches or subsamples are applied, suggesting that the cons of this D&O insurance seem to outweigh the pros. Since the findings provide international evidence on the role of D&O insurance, disclosure of the information on this insurance, advocated recently in several nations, is worthy of support.

In this study, we examine the linkage between directors’ liability insurance and overinvestment behavior. Based on observations in Taiwan, our findings indicate that firms covered by this insurance tend to have a higher degree of overinvestment. This supports the notion that moral hazard seems to exist in the market of directors’ liability insurance. As similar proportions of firms in Taiwan with and without this insurance, unlike observations in western countries, may enrich related studies with alternative market characteristics, revealing the dark side of this insurance also confirms the necessity for nations to disclose which firms are covered by this insurance.

Using a sample of 5,752 Taiwanese firm-year observations over the 2008 to 2012 period, we examine whether and how the existence of D&O insurance may affect firm performance. Our results suggest that whether to purchase D&O insurance is an endogenous corporate behavior, D&O insurance is not significantly related to firm performance. In addition, we find that firms with higher cash ratio, larger and more independent board are more likely to purchase the D&O insurance, while older firms are less likely to buy the D&O insurance. Our study implies that the government should not require firms to buy the D&O insurance. Instead, government should allow firms themselves to decide whether they optimally should purchase D&O insurance or not based on each firm’s particular circumstances. Firms should also not just simply follow their peers to buy the D&O insurance. They should carefully compare the benefits and costs of the D&O insurance based on their own situations, and only buy the insurance when the benefits exceed the costs.

Research on the effectiveness of compensation committee is limited and inconclusive. In Taiwan on Nov 5th, 2010, news on the passage of a new legislation was announced that all firms with stocks traded in Taiwan Stock Exchange or OTC should set up a compensation committee within one year period. We examine how the Taiwan stock market reacted to this announcement and factors that may affect the market reaction. We find Taiwan stock market reacted negatively on the announcement of the mandatory setup of compensation committee in the board of directors. All the mean (median) abnormal and cumulative abnormal returns around the announcement date are significantly negative at 1% significance level. Such results suggest that, in general, investors in Taiwan do not believe that the adoption of compensation committee in Taiwan helps to protect shareholders benefits. The multiple regression results show that director compensation has significantly positive impact on the abnormal returns, while board independence is negatively related to market reaction.

ABSTRACT This paper examines the link between D&O insurance and managerial compensation among Taiwanese firms during the period from 2008 to 2010. We find strong evidence of higher managerial compensation in firms with D&O insurance than in firms without D&O insurance. We also find average managerial compensation increased for a sample of firms after they adopted D&O insurance. Our findings suggest that D&O insurance may weaken the quality of corporate governance, thereby increase the likelihood for firms with this insurance to pay their managers more than firms without this insurance at the expense of shareholder wealth. Our results offer alternative evidence on the role of D&O insurance under different cultural and firm characteristics. Keywords D&O Insurance, Managerial Compensation, Corporate Governance, Agency Cost.