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The Effect of Director's Individual and Family Shareholdings on Firm Performance

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  • Tsung-Che Wu
  • Ming-hsiang Huang

Abstract

The relation between firm performance and shareholding is a critical issue in corporate governance. In this paper, we examine if significant associations exist between firm performance and (1) directors¡¯ shareholdings or (2) directors¡¯ family shareholdings among Taiwanese listed firms. After addressing for possible endogeneity and controlling for firm specific variables, we find a positive association between executive director¡¯s shareholding and firm performance. Consistent with incentive effect in agency theory, this result indicates that executive directors have incentive to maximize firms¡¯ value. Also, we find that executive directors¡¯ family shareholding is positively related to firm performance, which implies that executive directors may be motivated by their family members to improve firm value. The results also imply that the majority-minority agency problem can be mitigated when director¡¯s family welfare is at stake. In addition, we divide research sample into subsets to accommodate the effect of mandatory independent director regulation in Taiwan since 2007.

Suggested Citation

  • Tsung-Che Wu & Ming-hsiang Huang, 2018. "The Effect of Director's Individual and Family Shareholdings on Firm Performance," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(4), pages 51-62, October.
    • Handle: RePEc:jfr:ijfr11:v:9:y:2018:i:4:p:51-62
    DOI: 10.5430/ijfr.v9n4p51
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    References listed on IDEAS

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