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The Agency Problems, Firm Performance and Monitoring Mechanisms: the evidence from collateralised shares in Taiwan

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  • Lanfeng Kao
  • Jeng‐Ren Chiou
  • Anlin Chen

Abstract

This paper indicates that there is an inverse relationship between collateralised shares and firm performance. We further show that this inverse relationship exists only in conglomerate firms. These findings imply that agency problems resulting from shares used as collateral by boards of directors are more serious in conglomerate firms than in non‐conglomerate firms. Moreover, we provide evidence that monitoring by institutional investors, creditors and dividend policy can effectively reduce the agency problems of shares used as collateral and thus can improve firm performance.

Suggested Citation

  • Lanfeng Kao & Jeng‐Ren Chiou & Anlin Chen, 2004. "The Agency Problems, Firm Performance and Monitoring Mechanisms: the evidence from collateralised shares in Taiwan," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(3), pages 389-402, July.
    • Handle: RePEc:bla:corgov:v:12:y:2004:i:3:p:389-402
    DOI: 10.1111/j.1467-8683.2004.00380.x
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    1. Claessens, Stijn & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1999. "Expropriation of minority shareholders : evidence from East Asia," Policy Research Working Paper Series 2088, The World Bank.
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    Cited by:

    1. Xiao, Zhongyi & Chen, Haitao & Chen, Kang, 2023. "How does institutional investors' information acquisition inhibit share pledging? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    2. Huang, Paoyu & Ni, Yensen, 2017. "Board structure and stock price informativeness in terms of moving average rules," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 161-169.
    3. Hou, Xipei & Shen, Yinjie(Victor) & Xing, Jing & Zhou, Fuzhao, 2023. "Hastily announced: Mergers and acquisitions with pledging shareholders," Journal of Financial Stability, Elsevier, vol. 67(C).
    4. Pei-Gi Shu & Sue-Jane Chiang & Man-Yin Chen, 2018. "A New Measure of Control-Cash Flow Deviation: Cases in Taiwan," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(4), pages 325-340, December.
    5. Guo, Kai & Ke, Bin & Tang, Song, 2023. "Private firms' financial constraints and share pledging by controlling shareholders of publicly listed firms: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 80(C).
    6. Zhou, Jingting & Li, Wanli & Yan, Ziqiao & Lyu, Huaili, 2021. "Controlling shareholder share pledging and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    7. Nigel Driffield & Jun Du & Jan Godsell & Mark Hart & Katiuscia Lavoratori & Steven Roper & Irina Surdu & Wanrong Zhang, 2021. "Understanding productivity:Organisational Capital perspectives," Working Papers 013, The Productivity Institute.
    8. Wu, Chen-Hui & Lin, Chan-Jane, 2017. "The impact of media coverage on investor trading behavior and stock returns," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 151-172.
    9. Jiang, Fuxiu & Xia, Xiaoxue & Zheng, Xiaojia, 2021. "Does controlling shareholders' share pledging raise suppliers' eyebrows?," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    10. Chan, Konan & Chen, Hung-Kun & Hu, Shing-yang & Liu, Yu-Jane, 2018. "Share pledges and margin call pressure," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 96-117.
    11. Su-Lien Lu & Ying-Hui Li, 2019. "Effect of Corporate Governance on Institutional Investors’ Preferences: An Empirical Investigation in Taiwan," JRFM, MDPI, vol. 12(1), pages 1-21, February.
    12. Shi, Yang & Li, Jiachen & Liu, Ruiming, 2023. "Financing constraints and share pledges: Evidence from the share pledge reform in China," Journal of Corporate Finance, Elsevier, vol. 78(C).
    13. Aboudou Maman Tachiwou, 2016. "Corporate Governance and Firms’Financial Performance of Listed Company in the West African Monetary Union (Wamu) Regional Financial Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(8), pages 212-212, August.
    14. Kuang-Hua Hu & Sin-Jin Lin & Ming-Fu Hsu, 2018. "A Fusion Approach for Exploring the Key Factors of Corporate Governance on Corporate Social Responsibility Performance," Sustainability, MDPI, vol. 10(5), pages 1-18, May.
    15. Chien Mu Yeh, 2020. "The influence of foreign institutional investors, institutional directors, and the share pledge ratio of directors on financial performance of tourism firms," Tourism Economics, , vol. 26(1), pages 179-201, February.
    16. Su-Lien Lu & Kuo-Jung Lee, 2021. "Investigating the Determinants of Credit Spread Using a Markov Regime-Switching Model: Evidence from Banks in Taiwan," Sustainability, MDPI, vol. 13(17), pages 1-25, August.
    17. Wu, Wei-Hwa, 2021. "Extendible stock loan," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    18. Xiao, MingFang & Cao, June & Chiang, Yao-Min, 2022. "Kiss the baby for the nurse's sake? - Guaranteeing employees' stock purchase against loss program," International Review of Financial Analysis, Elsevier, vol. 81(C).
    19. Wang, Xiaoqiong & Zhen, Hongxian & Zhu, Feifei, 2023. "Voting with their feet: Controlling shareholders' share pledging and other major shareholders' strategic response," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    20. Li, Wanli & Zhou, Jingting & Yan, Ziqiao & Zhang, He, 2020. "Controlling shareholder share pledging and firm cash dividends," Emerging Markets Review, Elsevier, vol. 42(C).
    21. Liu, Wei & Tian, Gary Gang, 2022. "Controlling shareholder share pledging and the cost of equity capital: Evidence from China," The British Accounting Review, Elsevier, vol. 54(6).
    22. repec:bla:jomstd:v:47:y:2010:i:s2:p:1590-1613 is not listed on IDEAS
    23. Zhu, Bing & Xia, Xiaoxue & Zheng, Xiaojia, 2021. "One way out of the share pledging quagmire: Evidence from mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 71(C).
    24. Andreas Högberg, 2011. "Family Ownership and Regional Economic Development in Asia and Europe," ERSA conference papers ersa10p940, European Regional Science Association.

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