Corporate governance, board compensation and firm performance: An investigation of corporate governance in Taiwan's high-tech industry (China)

The importance of a board of directors stands out all over the world after the collapse of Enron and WorldCom. An international harmonization of corporate governance standards also finds emerging markets such as Taiwan moving their corporate governance standards toward the Anglo-American model. This study therefore, is going to ask three questions of corporate governance for corporations in Taiwan (1) what form of corporate governance is best, (2) whether shareholders benefit from providing directors with more pay and, (3) if it help to have more outsiders on the boards.{09}We find that controlling for standard economic determinants of director compensation (a firm's demand for a high-quality directors, prior firm performance, and risk) most effective board and ownership structures correspond to levels of director compensation. We also find that, in the short term or in the long term, excess compensation in board and ownership structure firm performance has negative association with firms' operating performance measured in return on assets (ROA) and economic performance in Tobin's Q (the ratio of the market value of the firm's securities to the replacement cost of its tangible assets). It implied that director compensation can not substitute for ineffective monitoring by the board of directors. Extending the two stage regression as a path analysis, we find that a small board, fewer outside directors, and more ownership held by directors and supervisors make for better corporate governance structures for high-tech companies in Taiwan. Larger boards with more outside directors on them do not make for more effective monitoring by boards of directors and for better performance of high-tech firms in Taiwan. On the contrary, they bring more agency costs between shareholders and agent directors.{09}Given the mixed evidence from current literatures and our study on the effects of outside directors, we conclude that the Anglo-American structure model has not benefited corporate governance in Taiwan; the only way we can do this is by increasing self-awareness of the boardroom culture.