Insider Ownership Structure and Firm Performance: a productivity perspective study in Taiwan's electronics industry

Her‐Jiun Sheu · Chi-Yih Carol Yang

68 citations0/0 files storedCorporate Governance An International Review

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Abstract

In the context of agency theory (Jensen and Meckling, 1976. Journal of Financial Economics, 3, 305–360), how insider stock ownership relates to firm performance is explored in this paper. The relevant performance measure used is total factor productivity. Insiders are classified into executives, board members and blockholders so as to facilitate a detailed study. Five-year (1996–2000) panel data of 333 Taiwanese listed electronics firms are examined. It is observed that total insider ownership remains steady while the executive-to-insider holding ratio increases significantly. In terms of the effect on total factor productivity, neither the total insider ownership nor the board-to-insider holding ratio shows any influence on productivity. However, productivity first decreases then increases with the executive-to-insider holding ratio, forming a U-shaped relationship. The results indicate that stock ownership of top officers in high-tech firms should be encouraged to enhance productivity.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1999Corporate Ownership Around the World 1988Management ownership and market valuation 1985The Structure of Corporate Ownership: Causes and Consequences 2000The separation of ownership and control in East Asian Corporations 1990Additional evidence on equity ownership and corporate value 1998Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure 1999Understanding the determinants of managerial ownership and the link between ownership and performance

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