Family Holding and Board Effectiveness on the Risk-taking of Financial Industry in China and Taiwan

Since the financial crisis hit global financial markets and leads global economies into recession, people has had little confidence in the market. It exposed the poor mechanism of internal and external supervision, and the significance of corporate governance is getting noticed. Most enterprises in Taiwan and the Peoples’ Republic of China are family holding businesses. This study involves the Taiwanese and Chinese financial industries and examines the influence of family ownership and board effectiveness on risk-taking in both the pre- and post-crisis period. The result shows that there is a significant negative correlation between family ownership and risk-taking. There is also a significant negative correlation between board effectiveness and risk-taking. Bank risk increases significantly in the pre-crisis period, in contrast to the post-crisis period. However, risk-taking of insurance and securities increases significantly in the post-crisis, in contrast to the pre-crisis period. The improvements of board effectiveness in banking, insurance or securities are able to decrease financial risk-taking. In the post-crisis period, the banking in Taiwan and the Peoples’ Republic of China can reduce bank risk-taking with the improvements of board effectiveness, but it occurs opposite results in insurance and securities, resulting from the difference of industry characteristics.JEL classification numbers: G32, G34Keywords: Family holding, Board effectiveness, Risk-taking, Corporate governance, Financial industry.