En-Te Chen

Optimal Board Monitoring in Family-owned Companies: Evidence from Asia

We propose that high levels of monitoring are not always in the best interests of minority shareholders. In family-owned companies the optimal level of board monitoring required by minority shareholders is expected to be lower than other companies. This is because the relative benefits and costs of monitoring are different in family-owned companies. At moderate levels of board monitoring, we find concave relationships between board monitoring variables and firm performance for family-owned companies but not for other companies. The optimal level of board monitoring for our sample of Asian family-owned companies equates to board independence of 38%, separation of the Chairman and CEO positions and establishment of audit and remuneration committees. Additional testing shows that the optimal level of board monitoring is sensitive to the magnitude of the agency conflict between the family group and minority shareholders and the presence of substitute monitoring. The results confirm that more monitoring is not always associated with better performance. However, the board governance practices of family-owned companies are still well below the identified optimal levels.

The Effectiveness Of Corporate Governance Codes: Long-Term Analysis From East Asia

This study examines the effectiveness of corporate governance codes in four East Asian markets by investigating the timing and persistence of firm compliance with code recommendations. Over the period 1999 to 2009 we find a number of significant improvements in code compliance, but not all can be attributed to the introduction of code recommendations. We also provide evidence of the codes having unintended consequences — firms previously with higher board or committee independence reducing their independence to code recommendation levels. Our results suggest that code recommendations targeting the creation of new mechanisms (e.g., remuneration committees) have been effective but that policymakers need to be particularly careful when formulating code recommendations about existing governance practices.

Asset Allocation in Retirement: Does Glide Path Matter?

We compare the performance of the commonly nominated default retirement investment option, the lifecycle fund, to alternative investment strategies during retirees’ decumulation phase. Under different shortfall risk measures, we find balanced portfolios with constant exposure to equities, equity dominated portfolios as well as ‘reverse lifecycle’ portfolios that increase exposures to equities over time to consistently outperform the conventional lifecycle portfolio. While an increasing equity glidepath improves the performance of an investment strategy, the starting asset allocations are equally important. Using a utility-of-terminal wealth approach which allows for loss aversion as discussed in prospect theory by Kahneman and Tversky (1979), we find the Growth portfolio to dominate the alternative strategies at low and moderate thresholds. With increasing wealth threshold levels, a strategy with all equity allocations becomes dominant. The lifecycle portfolio is dominated by the ‘reverse lifecycle’ portfolio at all threshold levels.