The Relationship Of Board Of Directors' Equity Structures And Shareholders' Pledge Factors With The Business Risk And Performance: The Evidence From Taiwan Stock

The purpose of this study is to examine the relationship of board of directors' equity structures and shareholders' pledge factors with the business risk and performance of listed companies in Taiwan stock market. This study is based upon an analysis of Taiwan listed companies for the year 1998 and 1999. First of all, we summarize the literature of the insiders' pledge factors in the Information Asymmetry environment. Secondly, a "Multiple Regression Model" is employed to examine the pledge relationship between insider and business risk and performance. Furthermore, this study explores when stock market becomes unsteady whether the determinants of insider's pledge will affect the shareholders' behavior regarding business operating performance.Two different kinds of measure variables were adopted in this study. For business risk, the variables of Dividend Payout, Growth, Debt ratio, Liquidity, Size, Variability in earnings, Covariability in earnings (accounting 6) are used, while the measure variables for enterprise's operating performance are ROE, ROA and EPS, respectively.The findings of this empirical study are-as the follows:1. The evidence of 1998 indicates that inside shareholder's pledge ratio and amounts have positive correlation and significant difference with Growth, and Debt ratio. However, it shows negative correlation and significant difference with Liquidity. The test results for the data of the year of 1999 demonstrates negative correlation and significant effects with Dividend Payout but have positive correlation and significant effects with Debt ratio. It can be concluded that relationship exists between insider's pledge ratio and business risk.2. The lower the insider's equity shares proportion the higher the pledge ratio. This results show that minority inside shareholder, however, prefers to adopt higher leverage investment, which must cause serious agent problems.3. The correlation between insider shareholding ratio and EPS is negative. However, when enterprise sales revenue growth more than and equal to 10%, the correlation between insiders pledge ratio and ROE is positive. This means insiders' pledge ratio can be an important signal.4. If the insider's pledge ratio is high under the bear market, Insider is willing to make more effects in enhancing enterprise's performance, which is in-conformity with the Convergence of Interest Hypothesis.