Article IV - An Empirical Study of Corporate Governance and...

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An Empirical Study of Corporate Governance and Corporate Performance Hsiang-tsai Chiang, Feng Chia University, Taiwan ABSTRACT Recent accounting scandals have renewed attention to corporate transparency. According to signaling theory, under information asymmetry, corporations with superior information transparency signal better corporate governance. Prior research also indicates that corporations that have better corporate governance signal better performance. This study provides an empirical analysis of the relationship between information transparency and corporate governance in Taiwan’s high-tech industry. This research adopts Standard & Poor’s (S&P) information transparency measurement criteria to gauge information transparency of selected companies. Companies’ annual reports are used in S&P research. However, from the investor’s point of view, transparency information can be obtained not only from the annual report but also from other public sources, such as the company’s web site and the Taiwanese Security Exchange Committee and Taiwan Economic Journal databases. Therefore, this study supplements S&P criteria with information gathered from all public materials in order to obtain more comprehensive transparency information. The results indicate that board size, board ownership, institution ownership, financial transparency, information disclosure, and board and management structure and process have significant relationships with operating performance. The results of this study also support that information transparency is one of the most important indicators for evaluating corporate performance. INTRODUCTION Recent accounting scandals have renewed attention to corporate transparency. According to signaling theory, under information asymmetry, corporations with superior information transparency signal better corporate governance. Prior research also indicates that corporations that have better corporate governance signal better performance. This study provides an empirical analysis of the relationship between information transparency and corporate governance in Taiwan’s high-tech industry. LITERATURE REVIEW Signaling Theory The theory base of this study is signaling theory. Spence (1973) states that if information asymmetry exists between a company’s managers and investors, the company can provide information to the investor in order to eliminate the asymmetry. In other words, if information asymmetry exists, there is no way for the investor to understand the real situation of the company’s operations. Prior research indicates that investors rely on the information sent out from the company to make investment decisions (Leland and Pyle, 1977; Ross, 1977; Bhattacharya, 1979; Ambarish, John and Williams, 1987; Poitevin, 1990; Ravid and Saring, 1991). In practice, companies with good operating performance often disclose information to the public to promote positive impressions of their company.
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