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Insider ownership and firm performance in Taiwan's electronics industry: a technical efficiency perspective

  • Her-Jiun Sheu

    (Department of Management Science and Graduate Institute of Finance, National Chiao Tung University, Taiwan)

  • Chi-Yih Yang

    (Department of Information Management, Ming-Hsin University of Science and Technology, Taiwan)

Registered author(s):

    This paper applies agency theory to explore the relationship between insider stock ownership and firm performance, particularly in terms of technical efficiency. Insiders are further classified into executives, outside directors, and large shareholders to conduct a detailed study. Six-year (1996-2001) panel data of 416 Taiwanese listed electronics firms are examined by the stochastic production frontier approach. It is observed that raising the executive-to-insider holding ratio first causes a decrease and then an increase in technical efficiency, forming a U-shaped relationship. However, the board-to-insider holding ratio is negatively associated with technical efficiency. The results indicate that equity ownership of top officers in high-tech firms should be encouraged to enhance firm productivity. Copyright © 2005 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1228
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    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 26 (2005)
    Issue (Month): 5 ()
    Pages: 307-318

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    Handle: RePEc:wly:mgtdec:v:26:y:2005:i:5:p:307-318
    Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September.
    3. Luigi Benfratello, 2002. "Beyond profitability: effects of acquisitions on technical efficiency in the Italian pasta industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(7), pages 399-415.
    4. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 377-397, September.
    5. Anup Agrawal & Charles R. Knoeber, . "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
    6. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
    7. Kodde, David A & Palm, Franz C, 1986. "Wald Criteria for Jointly Testing Equality and Inequality Restriction s," Econometrica, Econometric Society, vol. 54(5), pages 1243-48, September.
    8. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
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