Tsun-Siou Lee

Family Control and Corporate Governance: Evidence from Taiwan

A recent stream of literature shows that family control is central in most countries of the world, but little research exists regarding family control and corporate governance. This paper analyses family control and corporate governance using a sample of Taiwanese firms. The results suggest that family control is even more prevalent than previously suggested and that a non-linear relation exists between family control and relative firm performance. Family-controlled firms that have low levels of control have lower relative performance than both family-controlled firms with high levels of control and widely held firms. This is consistent with the conflict of interest between majority and minority shareholders being the greatest when the majority shareholder’s level of control is high enough to influence a firm’s decision-making process but ownership is low enough that the benefits of expropriation outweigh the costs. Furthermore, a positive valuation effect exists when controlling families hold less than 50% of a firm’s board seats. Taken together, the results in this paper suggest that when family control is central, high levels of family ownership and low levels of family board representation are effective ways of mitigating the separation of cash flow rights and control and, thus, decreasing the conflict of interest between majority and minority shareholders.

The interaction and volatility asymmetry of unexpected returns in the greater China stock markets

Abstract The response of investors to unexpected returns and the information transmission in the stock markets of the Greater China area are investigated in this study. First, we analyze the asymmetric reaction of return volatility to good and bad news by utilizing generalized autoregressive conditional heteroskedasticity (GARCH) model. We find that the impact of bad news (negative unexpected return) on future volatility is greater than the impact of good news (positive unexpected return) of the same magnitude in Taiwan and Hong Kong, consistent with the previous literature. However, just the opposite is found in the Shanghai and Shenzhen markets, implying good-news-chasing behavior of the investors. This phenomenon also indicates that behaviors of the investors in Mainland China may be inclined to support the trading noise hypothesis. Further, this study examines information transmission of contemporaneous and cross-period by exploring the interaction of unexpected returns among these four markets. The results of a near vector autoregressions (VAR) model reveal that the Hong Kong stock market plays a most influential role (regional force) among the Taiwan, Shanghai, and Shenzhen B-share stock markets. Finally, the stock returns in the Taiwan market, which has been quite independent of the Mainland China stock markets, became negatively correlated with the Shanghai B-share market during the Taiwan Strait Crisis period. The interaction among financial markets seems to be strengthened by political incidents.

Non‐Tradable Share Reform and Corporate Governance in the Chinese Stock Market

Prior to China’s split-share structure reform, domestic A shares were divided into non-tradable and tradable shares. Non-tradable shareholders represent the government, hold roughly a two-thirds majority, and manage the firms, while tradable shareholders have little power to affect the decisions made by non-tradable shareholders. This is a typical structure to exhibit agency problems. The 2005 structure reform program stipulates that non-tradable shareholders have to bargain with tradable shareholders in order to gain liquidity. The price that non-tradable shareholders pay to tradable shareholders for gaining liquidity is defined as “compensation.” We explore the issue of why corporate governance might play an important role in affecting the level of compensation. Firms with a weak governance structure or severe agency problems are required to have a higher level of compensation. The level of compensation is positively correlated with the non-tradable shareholding, the pledge ratio, and related-party transactions, and is negatively correlated with foreign shareholdings. The same set of variables dictates the ex-post wealth effect of tradable shareholders, but in the reverse direction. The share reform provides a natural setting that allows tradable shareholders to reflect their concerns with agency problems. The mechanism could ameliorate the agency problems. Corporate governance, in a broad sense, is related to compensation and the ex-post wealth effect of tradable shares. A successful mechanism should be designed to have minority shareholders involved in the process and have the final compensation reflect the quality of corporate governance.

Can Fund Investors Benefit from Momentum and Herding Strategies in Taiwan Market

Fund performance and fund flow interaction of momentum strategies in short, intermediate and long horizons are investigated in this study. Various sorting schemes such as one-way sorting, two-way independent sorting and two-way dependent sorting are applied to both raw returns and category-adjusted returns to form portfolios with different return-flow combinations. It is found that, by two-way sorting, return momentum exits for all horizons, no matter controlling flow or not, being adjusted by category or not. Low flow funds tend to outperform high flow funds, no matter controlling return or not, being adjusted by category or not. The evidence suggests that chasing not only past return winners but also neglected funds may be best fit for the investors who want the best returns. However, the additional information offered by past returns and fund flows may not valid in bear markets. To utilize the momentum and anti-herding strategies, the investors still need to consider timing and adopt long horizon to cover whole business cycle.