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Voluntary Appointment of Independent Directors in Taiwan: Motives and Consequences

Authors

  • Chaur-Shiuh Young,

    1. The authors are respectively Associate Professor at the Department of Accountancy and Graduate Institute of Finance & Banking, National Cheng Kung University, Taiwan; Professor at the Department of Business Administration, National Chia-Yi University, Taiwan; and Assistant Professor at the Department of Accounting and Information Technology, National Chung Cheng University, Taiwan. They appreciate the valuable comments received at the 2006 AAA International Accounting Section Mid-Year Meeting. They thank Peter F. Pope (editor) and the anonymous referee for helpful suggestions that have greatly improved this paper. Finally, Chaur-Shiuh Young acknowledges the financial support of Taiwan National Science Council (project number NSC 90-2416-H-194-017).
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  • Liu-Ching Tsai,

    1. The authors are respectively Associate Professor at the Department of Accountancy and Graduate Institute of Finance & Banking, National Cheng Kung University, Taiwan; Professor at the Department of Business Administration, National Chia-Yi University, Taiwan; and Assistant Professor at the Department of Accounting and Information Technology, National Chung Cheng University, Taiwan. They appreciate the valuable comments received at the 2006 AAA International Accounting Section Mid-Year Meeting. They thank Peter F. Pope (editor) and the anonymous referee for helpful suggestions that have greatly improved this paper. Finally, Chaur-Shiuh Young acknowledges the financial support of Taiwan National Science Council (project number NSC 90-2416-H-194-017).
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  • Pei-Gin Hsieh

    Corresponding author
    1. The authors are respectively Associate Professor at the Department of Accountancy and Graduate Institute of Finance & Banking, National Cheng Kung University, Taiwan; Professor at the Department of Business Administration, National Chia-Yi University, Taiwan; and Assistant Professor at the Department of Accounting and Information Technology, National Chung Cheng University, Taiwan. They appreciate the valuable comments received at the 2006 AAA International Accounting Section Mid-Year Meeting. They thank Peter F. Pope (editor) and the anonymous referee for helpful suggestions that have greatly improved this paper. Finally, Chaur-Shiuh Young acknowledges the financial support of Taiwan National Science Council (project number NSC 90-2416-H-194-017).
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* Address for correspondence: Chaur-Shiuh Young, No. 1, University Rd., Tainan City 701, Taiwan, R.O.C. e-mail: actycs@mail.ncku.edu.tw

Abstract

Abstract:  This study explores factors that motivate firms to increase board independence in the absence of legal requirements to do so. In addition, we examine the impact of voluntary enhancement of board independence on firm performance. Using a sample of listed companies in Taiwan, we show that voluntary appointment of independent directors is associated with both economic factors and managerial power. Specifically, we find that board independence increases with the weaknesses of alternative corporate governance mechanisms and the severity of agency problems. However, board independence decreases with managerial ownership and family control. In addition, by employing a simultaneous equations model with selectivity, we provide evidence supporting the positive performance impact of voluntary appointment of independent directors in Taiwan.

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