企業資源規劃報告
THE EFFECT OF CORPORATE
GOVERNANCE ON RISK-TAKING BEHAVIOR
IN TAIWANESE FAMILY BUSINESS DURING
THE INSTITUTIONAL REFORM
班級：碩研科管二甲
學號：MA0Q0106
姓名：吳崟愷
INTRODUCTION OF THE PAPER

Cheng-Yu Lee
Department of Management and Information
Technology Southern Taiwan University

Weichieh Su
School of Management University of Texas at
Dallas
RESEARCH PROCESS

INTRODUCTION

LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT

METHODOLOGY

RESULTS

DISCUSSION

CONCLUSION
INTRODUCTION

What are the effects of corporate governance on
family firms?

Mainly the discussions were focused on Western
contexts, arguing that the concentration of family
ownership and control favors entrepreneurship
(Aldrich and Cliff, 2003; Astrachan, Zahra and
Sharma, 2003; Zahra, 2005)

Little has been explored about the effects of
corporate governance on family firms’ risk-taking
behavior in newly industrialized economies.
INTRODUCTION

Positive relationship between family firms and risktaking behavior is found in a Western setting, such
positive relationship seems skeptical in an Asian
setting because of the diffident social contexts

Are family firms positively associated with risk-taking
in an Asian setting?

Are the corporate governance reforms of introducing
outside directors effective enough to facilitate family
firm’s risk taking?
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Family ownership

Based on 209 U.S. manufacturing family firms,
Zahra (2005) finds that family ownership and
involvement facilitate entrepreneurship.

Firms with high family ownership have incentives
and power to control managers’ behaviors not
only to increase their wealth but also to entrench
family’s position
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Family ownership


Family members with majority ownership and
concentrated management might appropriate the
wealth of minority shareholders, causing another
agency problem—principal-principal conflict
(Cronqvist and Nilsson, 2003; Villalonga and Amit,
2006).
Hypothesis 1a Family ownership is
negatively related to risk-taking behavior.
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Family involvement

Some studies show that family members that are
highly involved in the board of directors are likely
to exhibit altruism (Schulze et al., 2003)

This altruistic behavior arising from family
members not only facilitates the communication
but also enhances the cooperation, thus
decreasing the asymmetrical information among
board members (Daily and Dollinger, 1992).
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Family involvement


Altruism eventually causes family board members
to make decisions arbitrarily and brings about
perquisites and privileges (Schulze, et al., 2003).
Hypothesis 1b Family involvement is
negatively related to risk-taking behavior.
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Outside directors

The introduction of outside directors can help
family business access specific professional
knowledge (Carpenter and Westphal, 2001) and
connect with other networks (Certo, Daily and
Dalton, 2001).

Anderson and Reed (2004) find that outside
directors usually represent minority shareholders
to counter the opportunistic behaviors of the
majority shareholders in the family business
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Outside directors


Shldeifer and Vishny (1997) argue that outside
directors play roles in balancing the power in the
family business to avoid the appropriation of
resources.
Hypothesis 2a Outside directors weaken the
negative relationship between family
ownership and risk-taking behavior.
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Outside directors

Assuming family firms voluntarily appoint outside
directors before the law requires it, this
demonstrates that family members are not
conservative and are willing to let outside
directors participate in board decisions, and even
supervise business operations.

Family firms that appoint outside directors due to
law requirements might do so reluctantly, that is
they appoint someone who is outside the
company but closely connected to the family.
LITERATURES REVIEW AND
HYPOTHESES DEVELOPMENT
Outside directors


It is difficult to distinguish the motivations of firms
to appoint outside directors when the policy
becomes compulsory rather than voluntary.
Hypothesis 3 Outside directors have stronger
moderating effect on family firm's risk taking
behavior in the family firms that voluntarily appoint
outside directors than in those that compulsorily
appoint outside directors.
METHODOLOGY
Sample selection

All data are obtained from Taiwan Economic
Journal (TEJ)

Considering one of the issues in this study is risk
taking, we take companies in the ICT industries as
our samples.

Our sample finally contains total 314 listed ICT
companies in Taiwan. Data for these public-listed
firms covered a 3-years period, 2005-2007.
METHODOLOGY
Measures

In TEJ, it reports the name and the relative
relationships between of the largest shareholders,
managerial shareholders and board-member
shareholders.

Family ownership is therefore measured by a
number measure which indicates the percentage
of equity owned by family members.
METHODOLOGY
Measures

Family Involvement is measured by the ratio of
family board members to the total board members.

Outside Director is measured by the ratio of
outside directors to the total board members.

The above main variables are measured as a
three-year average.
METHODOLOGY
Measures

We take total assets, employee numbers, debt
ratio, return on assets (ROA), and CEO duality as
our control variables.

These control variables are measured as a threeyear average.

This paper utilizes hierarchical regression models
to examine the effects of corporate governance on
risk-taking behavior in family firms.
RESULTS
RESULTS
RESULTS
RESULTS
DISCUSSION

The conflict of interests between the family (majority)
and shareholders (minority) dampens the risk-taking
behavior in family firms

The cronyism makes the board of directors lose their
roles of monitoring and controlling.

Outside directors can weaken the negative
relationship between family firm and risk taking, the
effect only sustains when firms voluntarily appoint
outside directors.
CONTRIBUTIONS
First

We empirically support that principal-principal conflicts
exist in Asian environment.

The main potential problem of corporate governance
in such setting is the asymmetry between majority
shareholders (family ownership) and minority
shareholders.

Prior studies find that family firms are relatively risktaking in Anglo-American setting, this study finds that
family firms are less risk-taking in an Asian setting.
CONTRIBUTIONS
Second

Outside directors favor risk-taking in family firms,
we argue that the effects of outside directors have
limitation, especially in the institutional transition.

During institutional transition some firms are less
prepared to be such transparency and partly
because some firms are less supportive of the
policy of outside directors.
CONTRIBUTIONS
Third

Family firms with high ownership involvement are
less risk-taking based on the sample of
Taiwanese listed firms in the ICT industries

family firms voluntarily introduce outside directors,
their inclination to risk-taking changes from
avoidance to preference.

This effect demonstrates that family firms can
intrinsically change their own attitude via
professional supervision and suggestions from
outsiders.
CONTRIBUTIONS
Fourth

The larger firms that are under stricter control by
the government have higher representation of
outside directors because large firms highly
depend on the government for resources.

The firms with weak prior performance also have
high representation of outside directors in order to
lower the environmental uncertainty and to send a
positive signal to stakeholders.
CONTRIBUTIONS
limitations

Firms in ICT industries are relatively risk-taking,
this study provide a conservative results.

Future studies may take other industries into
considerations so as to make our arguments
generalizable.

We choose data between years 2005-2007
because we would like to target the period of
corporate governance reform.
CONTRIBUTIONS

Principal-principal logic to explain the
opposite perspectives of risk-taking behavior
in family firms.

Data from Taiwan support our arguments that
family ownership and involvement hamper
firms to invest in risk-taking

Firms voluntarily introduce outside directors,
can outside directors play their roles to impel
firms to more risk-taking.
Thank you !