Family Business in Taiwan:
Current and Future Challenges
Kuang S. Yeh, Ph.D.
Hsi-Mei Chung, Ph.D.
Family Businesses Research Center
29 June 2007
The Asian Family Enterprise Forum
Family Business in Asia:
Characteristics of Corporate Governance in East Asia


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Pyramid Structure
Cross-shareholding
Interlocking Directory
Principle-Principle Problem


Expropriation of minority shareholders
About 60% of public companies are family
controlled
29 June 2007
The Asian Family Enterprise Forum
Family
Business
in Asia:
Control of
Publicly
Traded
Companies
in East Asia
*Source: Claessens, Djankov, &
Lang, 2000, “The separation of
ownership and control in East Asian
corporations”, Journal of Financial
Economics, 58(1/2): 81-112.
29 June 2007
The Asian Family Enterprise Forum
Family
Business in
Asia: The
Concentration
of Family
Control in
East Asia
*Source: Claessens, Djankov, & Lang,
2000, “The separation of ownership
and control in East Asian
corporations”, Journal of Financial
Economics, 58(1/2): 81-112.
29 June 2007
The Asian Family Enterprise Forum
Corporate Governance
Environment in Taiwan


Taiwanese listed companies are typically
family-controlled
Characteristics of the listed market in
Taiwan




29 June 2007
The absence of effective audit committees
Low institutional ownership
An inactive market for corporate control
Independent directors may not independent
The Asian Family Enterprise Forum
Family Control in Taiwan:
Evidence in 1994 & 1995

For a 208 Listed Companies Sample in Taiwan


51.44% of the listed companies in Taiwan are
controlled by the Family
Average shareholding by the largest family is 26%
Focus on the control rights, not the cash flow rights
 The sum of direct and indirect ownership by the largest
family shareholder exceeds the firm’s critical control
share level
 Family member serves as the CEO, Chairman or hold
more than half of board of directors

29 June 2007
The Asian Family Enterprise Forum
Family Control in Taiwan:
Evidence in 1997 & 1998 (1)

For a 251 Listed Companies in Taiwan



Using the 20% control cut-off criteria, 58.2% of the
listed companies in Taiwan are controlled by a
family
Under the family-controlled listed companies, the
control rights and cash flow rights diverge more
than for other types of ultimate control structures
The stock collateral ratio is highest in the familycontrolled listed companies

The more serious agency problem in the familycontrolled listed companies
29 June 2007
The Asian Family Enterprise Forum
Family Control in Taiwan:
Evidence in 1997 & 1998 (2)

For a 251 Listed Companies in Taiwan



Higher cash flow rights are associated with higher
market value, while deviation of control from
cash flow rights reduces corporate value,
especially for companies under family control
The higher the collateralization of stock shares of
the controlling shareholders, the more severe the
agency problem and the lower the corporate value
The expropriation of minority shareholders is
more serious in the family-controlled listed
companies
29 June 2007
The Asian Family Enterprise Forum
1998
Family
Control
in The
Listed
Compan
ies in
Taiwan
*Source: Yeh, Ko, & Su, 2003,
“Ultimate control and
expropriation of minority
shareholders: New Evidence
from Taiwan”, Academia
Economic Papers, 31(3): 263299.
29 June 2007
The Asian Family Enterprise Forum
1998 Enhancement Mechanism by
Controlling Shareholders in Taiwan
Ultimate Control
Sample No.
Control (%)
Cash100 (%)
Cash 0 (%)
Cash 100/Control
Cash 0/Control
Cross-shareholding
Pyramid Structure
Participative Management
Stock Collateral Ratio (%)
Family
Control
146
38.34%
31.69%
19.39%
0.81
0.5
0.48
0.29
0.54
32.82%
Other
Control
30
39.29%
38.48%
35.86%
0.97
0.89
0.23
0.23
0.43
5.69%
Widely
Control
75
11.15%
9.66%
6.25%
0.89
0.58
0.32
0.15
0.39
27.86%
*Source: Yeh, Ko, & Su, 2003, “Ultimate control and expropriation of minority
shareholders: New Evidence from Taiwan”, Academia Economic Papers, 31(3):
263-299.
29 June 2007
The Asian Family Enterprise Forum
Family Control in Taiwan’s Listed
Companies: Evidence and Findings (1)


The critical shareholding level of family control
is inversely related to the company’s size
Families can gain effective control over larger
companies with lower levels of shareholding

The average control by the largest family is 26%,
and that families need only 15% control, on average,
to control a firm effectively for a 208 sample of
Taiwanese listed companies in 1994 & 1995
29 June 2007
The Asian Family Enterprise Forum
Family Control in Taiwan’s Listed
Companies: Evidence and Findings (2)

No performance difference between family and
non-family companies in 1994 & 1995


However, Family-controlled companies that have
low levels of control have lower relative
performance than both family-controlled
companies with high levels of control and widely
held companies
In family-controlled companies with higher
shareholding, expropriation is less desirable
because the family bears more of the costs
29 June 2007
The Asian Family Enterprise Forum
Family Control in Taiwan’s Listed
Companies: Evidence and Findings (3)

The expropriation of minority shareholders is
more serious in the family-controlled listed
companies in the 1997 & 1998 Sample


The deviation of control and cash flow rights
is greater in the family-controlled companies
than other type companies
The collateralization of stock shares is greater
in the family-controlled companies than other
type companies
29 June 2007
The Asian Family Enterprise Forum
Family Control in Taiwan’s Listed
Companies: Evidence and Findings (4)



The more serious the expropriation of
minority shareholders, the lower the market
value
The 1997 & 1998 sample implies that the
family-controlled listed companies have the
lower market value
Family Control perform worse than other
types of listed companies in the 1997 &
1998 sample
29 June 2007
The Asian Family Enterprise Forum
Family-controlled Business Groups
in Top 100 Business Groups
Year
1988 1992 1994 1996 1998 2000 2002
Manufa
cturing
Service
68
65
69
67
48
40
33
14
17
18
18
27
22
20
Others
Total
1
1
1
1
1
1
1
83
83
88
86
76
63
54
*Source: China Credit Information Service, 1990 to 2004, 1990 to 2004 Business Groups in Taiwan
29 June 2007
The Asian Family Enterprise Forum
The Profile of the Top 10 Business Groups in
1988
B u sin e ss
N am e
F o r m o sa
In d u str y T r a it
C h e m ic a l & P la stic
M a n u fa c tu r in g
C a th a y
F in a n c ia l S e r v ic e
S h in K o n g
F in a n c ia l S e r v ic e
C h in a T r u st
F in a n c ia l S e r v ic e
F a r E a st
T e x tile , A p p a r e l &
L e a th e r M a n u fa c tu r in g
H u a lo n
T e x tile , A p p a r e l &
T e x tile
L e a th e r M a n u fa c tu r in g
T a tu n g
E le c tr o n ic &
H o u se h o ld A p p lia n c e s
Y u lo n -M o to r
T r a n sp o r ta tio n
M a n u fa c tu r in g
T u n te x
T e x tile , A p p a r e l &
L e a th e r M a n u fa c tu r in g
C h u n g -S h in g
T e x tile , A p p a r e l &
T e x tile
L e a th e r M a n u fa c tu r in g
F a m ily
C o n tr o lle d
○
N um ber of
A ffilia te s
17
S u c c e ssio n o r
not
st
1 G e n e r a tio n
○
○
○
○
7
20
15
22
1 st
1 st
1 st
1 st
○
9
1 st G e n e r a tio n
○
35
1 st G e n e r a tio n
○
11
1 st G e n e r a tio n
○
19
2 n d G e n e r a tio n
○
11
1 st G e n e r a tio n
G e n e r a tio n
G e n e r a tio n
G e n e r a tio n
G e n e r a tio n
Source: China Credit Information Service,
1990, 1990 Business Groups in Taiwan
29 June 2007
The Asian Family Enterprise Forum
The Profile of the Top 10 Business Groups
in 2002
B u s in e s s
N am e
C a th a y
M ega
H o ld in g s
F orm osa
C h in a T r u s t
H o ld in g s
H ua N an
H o ld in g s
F ir s t
H o ld in g s
S h in K o n g
H o ld in g s
Fubon
H o ld in g s
F ar E ast
S in o -P a c
H o ld in g s
29 June 2007
I n d u s tr y T r a it
F a m ily
C o n tr o lle d
○
×
N um ber
of
A ffilia te s
31
24
1988
T op
10
○
×
F in a n c ia l S e r v ic e
F in a n c ia l S e r v ic e
S u c c e s s io n o r
not
C h e m ic a l &
P la s tic
M a n u fa c tu r in g
F in a n c ia l S e r v ic e
○
105
○
1 st & 2 n d
G e n e r a tio n
○
143
○
F in a n c ia l S e r v ic e
×
13
×
1 st & 2 n d
G e n e r a tio n
--
F in a n c ia l S e r v ic e
×
14
×
--
F in a n c ia l S e r v ic e
○
102
○
2 n d G e n e r a tio n
F in a n c ia l S e r v ic e
○
46
×
2 n d G e n e r a tio n
T e x tile , A p p a r e l
& L e a th e r
M a n u fa c tu r in g
F in a n c ia l S e r v ic e
○
139
○
2 n d G e n e r a tio n
○
45
×
2 n d G e n e r a tio n
2 n d G e n e r a tio n
--
*Source: China Credit Information Service, 2004, 2004 Business
The Asian FamilyGroups
Enterprise
Forum
in Taiwan
The Profile of the Top 10 Manufacturing
Business Groups in 2002
B u sin ess
N am e
In d u stry T ra it
F o rm o sa
C h em ica l & P la stic
F a r E a st
T ex tile, A p p a rel &
L ea th er
E lectro n ic
E lectro n ic
S teel
UM C
TSM C
C h in a
S teel
Q u a n ta
Y u lo n
M o to r
W a lsin
L ih w a
P resid en t
F a m ily N u m b er 1 9 8 8 S u ccessio n o r
C o n tro lled
of
T op 10
not
A ffilia te
s
105
1 st & 2 n d
○
○
G en era tio n
139
2 nd
○
○
G en era tio n
×
93
×
-×
14
×
-×
88
×
--
E lectro n ic
T ra n sp o rta tio n
M a n u fa ctu rin g
E lectro n ic W ire &
M ech a n ics E q u ip m en t
Food
×
○
29
147
×
○
○
124
×
○
202
×
E lectro n ic
×
75
×
K in p o
29 June 2007
-2 nd
G en era tio n
2 nd
G en era tio n
1 st & 2 n d
G en era tio n
--
*Source: China Credit Information Service, 2004, 2004 Business Groups in Taiwan
The Asian Family Enterprise Forum
Family Control Business Groups in
Taiwan: Evidence and Findings (1)

Family-Controlled groups are decreasing after
2000


Percentage of family directors and family
managers are decreasing


The industry transition in Taiwan before and after
2000
However, Percentage of institutional directors are
increasing
Family-controlled groups often use “pyramidal
structure” and “cross-shareholding” to handle
the
needs for growth
and control
29 June 2007
The Asian Family Enterprise Forum
Family Control Business Groups in
Taiwan: Evidence and Findings (2)

Evidence from 30 Family-controlled groups for
the past 14 years (1988-2002)



If the family members occupy more CEO or board
of directors seats within the group, this familycontrolled group is less likely to diversify into
related and the unrelated product fields
The inverse relationship between family control
and product diversification
Family control limits the growth of strategic
change in family-controlled groups
29 June 2007
The Asian Family Enterprise Forum
Family Control Business Groups in
Taiwan: Evidence and Findings (3)

Family Controlled Groups have to include more nonfamily professional managers to deal with the growth
need


Family control would be helpful for the group’s
performance after the market-oriented transition


However, Family members still dominant in the inner circle
Comparing 1973-1988, and 1988-1996 two time periods;
After 1988, during the market-oriented transition, family and
prior ties would improve group performance
The performance implications of family tie is inversed
U shape
29 June 2007
The Asian Family Enterprise Forum
Family Control Business Groups in
Taiwan: Evidence and Findings (4)

Comparing the family and non-family
controlled groups


Family-controlled groups are less likely to
diversify internationally than the non-family
controlled groups
Family-controlled groups are more likely to
cross-sharing within groups than the nonfamily-controlled groups
29 June 2007
The Asian Family Enterprise Forum
Family Business in Taiwan: Evidence (1)


Family control still dominant the listed
companies in listed market
Family-controlled groups are decreasing after
2000



The dominance of electronic business groups
The number of family controlled groups in the
electronic industry is lower than ones in other
industries
Family-controlled groups and listed companies
are likely to use “pyramidal structure” and
“cross-shareholding” to control the enterprises
29 June 2007
The Asian Family Enterprise Forum
Family Business in Taiwan: Evidence (2)



Family control does not significantly influence
the listed company’s performance in the 1994
& 1995 sample
The expropriation of minority shareholders is
more serious in the family-controlled listed
companies in the 1997 & 1998 sample
The 1997 & 1998 sample implies that the
family-controlled listed companies have the
lower market value
29 June 2007
The Asian Family Enterprise Forum
Family Business in Taiwan: Evidence (3)

Family control and ties are helpful for the
business group’s performance after the
market-oriented transition (after 1988), but
the positive effect will attain a threshold after
reach a certain point

The possible new evidence of the family control
on group’s performance after 1996, or even after
2000
29 June 2007
The Asian Family Enterprise Forum
Family Business in Taiwan:
Research and Challenges (1)




Very few systemic research in the area
Succession issues in family enterprises in
Taiwan
Corporate governance issues after family
businesses go public
Transition from family to professional
managed enterprise
29 June 2007
The Asian Family Enterprise Forum
Family Business in Taiwan:
Research and Challenges (2)



International expansion of the family
enterprises in Taiwan
More researches to provide evidence on the
linkage between the competitive advantage
and family control
Comparison between Taiwan and other East
Asia Region’s family business is lacking
29 June 2007
The Asian Family Enterprise Forum
Thank You for Listening
29 June 2007
The Asian Family Enterprise Forum