Abstract
This study discusses the institutional investors’ shareholding base on corporate governance system in Taiwan. The sample was 4760 Taiwanese companies from 2005 to 2012. Then, this study established six hypotheses to investigate the effects of corporate governance on institutional investors’ shareholdings. The panel data regression model and piecewise regression model were adopted to determine whether six hypotheses are supported. For sensitive analysis, additional consideration was given on the basis of industrial category (electronics or nonelectronics), and the 2008–2010 global financial crises. This study discovered that a nonlinear relationship exists between the domestic institutional investors’ shareholdings. The managerial ownership ratio and blockholder ownership ratio have positive effects both on domestic and foreign institutional investors. However, domestic and foreign institutional investors have distinct opinions regarding independent director ratios. Finally, the corporate governance did not improve institutional investors’ shareholdings during financial crisis periods; instead, they paid more attention to firm profits or other characteristics.
Highlights
The Cadbury Report (Cadbury 1992) was first produced by the Committee on the Financial Aspects of Corporate Governance (Cadbury Committee), which provided the definition of corporate governance as the “system by which companies are directed and controlled”, voluntary adoption of the governance best practices and the “comply or explain” principle (Shan and Napier 2014)
This study establishes six hypotheses to investigate the shareholding preferences of domestic and foreign institutional investors based on corporate governance mechanisms, including managerial ownership, independent directors, blockholder ownership, pledge stock ratios and CEO duality
Because the law was enacted in 2006, several sample firms were not affected by the law and the minimum of the independent director shareholdings ratio was 0%
Summary
The Cadbury Report (Cadbury 1992) was first produced by the Committee on the Financial Aspects of Corporate Governance (Cadbury Committee), which provided the definition of corporate governance as the “system by which companies are directed and controlled”, voluntary adoption of the governance best practices and the “comply or explain” principle (Shan and Napier 2014). Jensen and Meckling (1976) discussed conflicts of interest between various contracting parties, including shareholders, corporate managers and debt holders They found that agency costs generated by the existence of debt and outside equity, which is the sum of monitoring costs, bonding costs and residual loss. Leuz et al (2003) discovered that the quality of the information available for outside investors is high in countries with strong investor protection laws; the implementation of improved corporate governance mechanisms can attract institutional investors. This study establishes six hypotheses to investigate the shareholding preferences of domestic and foreign institutional investors based on corporate governance mechanisms, including managerial ownership, independent directors, blockholder ownership, pledge stock ratios and CEO duality. The empirical results reveal that corporate governance variables have dissimilar effects on the investment preferences of domestic and foreign institutional investors, such as independent director ratio and pledge stock ratio. The remainder of this paper is organized as follows: Section 2 provides empirical designs, including hypotheses and definition of variables; Section 3 describes the details of the model, Section 4 describes the data sample; Section 5 presents an analysis of the empirical results, and Section 6 presents our conclusion
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
