The determinants of corporate performance

Abstract

PurposeThe main purpose of this paper is to examine the determinants and interrelations between corporate ownership structure and corporate performance.Design/methodology/approachThe ownership of institutional investors are classified into government institutional ownership, financial institutional ownership, securities investment trust funds ownership, incorporated companies ownership, and other institutional ownership, so as to facilitate a detailed study. Ten‐year (1994‐2003) panel data of 569 Taiwanese listed companies are examined. Furthermore, this study applies the F‐test, LM‐test and Hausman test to determine the best statistical method (ordinary least squares method, fix effects model or random effects method).FindingsThe results show an inverse “U‐shaped” relationship between insider ownership and corporate performance. Government institutional ownership and incorporated companies ownership are found to have a significant negative correlation with corporate performance. However, securities investment trust funds and corporate performance are positively correlated.Practical implicationsThese findings provide Taiwanese listed companies with a insights on how to improve their corporate control mechanisms. These results can also serve as a useful reference for companies and the academics concerning future competitive strategies and decision making.Originality/valueThis study further incorporates the ratio of mortgaged/pledged shares of directors and supervisors and different institutional ownership to analyze how the mechanisms of corporate governance function in Taiwan's industries, and whether these mechanisms can effectively lower agency problems to enhance corporate performance.