Corporate Governance Rating and Firm Performance: Evidence from Taiwan

Headnote

Abstract

After the Asian financial crises, scholars started to focus on the importance of corporate governance which is the processes, practices and policies that a company relies on to make formal decisions and to manage the company. Corporate governance ratings act as a corporate governance tool by providing information to investors. Investors therefore expect that the ratings information will be incorporated in firm returns or value. This study examines the relationship between corporate governance rating and firm performance in Taiwan during the years 2014-2018. We use the Taiwan Stock Exchange (TWSE) corporate governance rating of a firm 's corporate governance structure and analyze this rating in relation to the firm 's operating performance. Accounting, based performance measures of firmsreturn on asset (ROA), return on equity (ROE) and earnings per share (EPS), were used to compare with TWSE corporate governance evaluation based on five sub-indices that are "Protecting Shareholder Rights and Interests ", "Treating Shareholders Equitably ", "Enhancing Board Composition and Operation", "Increasing Information Transparency", and "Putting Corporate Social Responsibility into Practice". The results show that corporate governance does matter in Taiwan. The study shows that better governed firms measured by high corporate governance rating have better performance in Taiwan.

Keywords: Corporate Governance, Corporate Governance Rating, Firm Performance

JEL Classification: G14, G23

(ProQuest: ... denotes formulae omitted.)

1.Introduction

During last two decades, the impact of corporate governance on corporate performance has been the main theme of much academic research in finance accounting and management literature. (Akbara, et al, 2016) In the late 1990's, there were numerous cases of graft and scandals in Asian financial markets that led to Asian financial crisis. After the collapse of Enron and WorldCom in the United States (U.S.), Marconi in the United Kingdom (U.K.), corporate governance has received a lot of attention. The concept, corporate governance, has been emerging since the early 1970's in response to the perceived lack of effective board oversight that contributed to the poor performance problems. Inadequate corporate governance system has been concluded as the major reason suffering the serious consequences on the Asian financial crises. The impact arising from Enron and WorldCom has put the issue under a spotlight. Therefore, the attention to enhance corporate governance has been emphasized hence after. Furthermore, OECD, in its...