Does Corporate Governance Enhance Bank Efficiency in Taiwan

Abstract

The purpose of this study is to investigate the relationship between bank efficiency and corporate governance in Taiwan. It aims to explain the effects of ownership structure, institutional investors' structure and manager turnover. The empirical results provide weak evidence to support the proposition that independent directors can improve bank efficiency. This study broke down the structure of institutional investors and found that when a higher percentage of banks were owned by domestic corporations, the efficiency-augmentation hypothesis was supported, whereas when a higher percentage of banks were owned by domestic trust funds, the efficiency-abatement hypothesis was supported. This study also found that in the Taiwanese banking industry in general, top executives of poorly performing banks are not more likely to lose their jobs and that, sometimes, boards did not appoint top executives based on ability but rather tended to appoint them based on the personal preferences of family board members.