The Agency Problems, Firm Performance and Monitoring Mechanisms: the evidence from collateralised shares in Taiwan

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Abstract

This paper indicates that there is an inverse relationship between collateralised shares and firm performance. We further show that this inverse relationship exists only in conglomerate firms. These findings imply that agency problems resulting from shares used as collateral by boards of directors are more serious in conglomerate firms than in non-conglomerate firms. Moreover, we provide evidence that monitoring by institutional investors, creditors and dividend policy can effectively reduce the agency problems of shares used as collateral and thus can improve firm performance.

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