This paper examines the determinants of board composition and firm valuation as a function of board composition in Taiwan -a country that features relatively weak protection for investors, firms with controlling shareholders, and pyramidal groups. The results suggest that there is poor governance when the board is dominated by members who are affiliated with the controlling family but good governance when the board is dominated by members who are not affiliated with the controlling family. In particular board affiliation is higher when negative entrenchment effects -measured by (1) divergence in control and cash flow rights, (2) family control, and (3) same CEO and Chairman -are strong and lower when positive incentive effects, measured by cash flow rights, are strong. Moreover, relative firm value is negatively related to board affiliation in family-controlled firms. Thus, the proportion of directors represented by a controlling family appears to be a reasonable proxy for the quality of corporate governance at the firm level when investor protection is relatively weak and it is difficult to determine the degree of separation between ownership and control.

Prior empirical evidence supports the wealth expropriation hypothesis that weak corporate governance induced by certain types of ownership structures and board composition tends to result in minority interest expropriation. This in turn reduces corporate value. However, it is still unclear whether corporate financial distress is related to these corporate governance characteristics. To answer this question, we adopt three variables to proxy for corporate governance risk, namely, the percentage of directors occupied by the controlling shareholder, the percentage the controlling shareholders shareholding pledged for bank loans (pledge ratio), and the deviation in control away from the cash flow rights. Binary logistic regressions are then fitted to generate dichotomous prediction models. Taiwanese listed firms, characterised by a high degree of ownership concentration, similar to that in most countries, are used as our empirical samples. The evidence suggests that the three variables mentioned above are positively related to the risk for financial distress in the following year. Generally speaking, firms with weak corporate governance are vulnerable to economic downturns and the probability of falling into financial distress increases. Copyright Blackwell Publishing Ltd. 2004.

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.

Manuscript Type: EmpiricalResearch Question/Issue: Using the data of the 20 largest financial institutions from G8 countries, we explore whether the performance is higher for financial institutions with more independent directors on different committees during the 2007-08 financial crisis. We also examine the moderating effect of a country-level civil law dummy and firm-level excessive risk-taking behaviors on the independence-performance relationships. Research Findings/Insights: The empirical evidence shows that the performance during the crisis period is higher for financial institutions with more independent directors on auditing and risk committees. The influence of committee independence on the performance is particularly stronger for civil law countries. In addition, the independenceperformance relationships are more significant in financial institutions with excessive risk-taking behaviors. Theoretical/Academic Implications: Our findings complement existing works to partially resolve the independenceperformance relationship controversies by exploring the independence of different committees. The moderating effects of civil law countries and excessive risk-taking firms further address the governance environment's role in the effectiveness of director independence. Practitioner/Policy Implications: Our results provide important policy implications for financial institutions. The regulation authorities should enhance regulation compliance to improve director independence, particularly for auditing and risk committees in banking industry. Independent directors in the banking industry are supposed to put more emphasis on excessive risk-taking behaviors, as the financial institutions profit from risk-bearing earnings.

In this study we contribute to the literature by re-examining the effect of control and ownership of controlling shareholder on corporate valuation, and determining which particular mechanism for enhancing voting rights would achieve the negative entrenchment effect. We take Taiwan listed companies, where the ownership concentration structure is similar to that in East Asian countries, as our sample. We find the corporate value is higher when the largest shareholder owns more cash flow rights (ownership), supporting the positive incentive effect. The negative entrenchment effect becomes evident when the largest shareholder's cash flow rights are less than the median. Therefore, if the cash flow rights owned by the largest shareholder are greater than the median, the positive incentive effect will restrain the negative entrenchment effect. In family-controlled companies, the corporate value will conspicuously decrease if the largest shareholder enhances their voting rights through cross-shareholding, deeply participates in management or controls most board of directors. Copyright Blackwell Publishing Ltd 2005.

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