An Empirical Study of
Corporate Governance and Corporate Performance
ABSTRACT
Recent accounting scandals have renewed attention to corporate transparency. According to signaling theory,under information asymmetry, corporations with superior information transparency signal better corporategovernance. Prior research also indicates that corporations that have better corporate governance signal betterperformance. This study provides an empirical analysis of the relationship between information transparency andcorporate governance in Taiwan’s high-tech industry.This research adopts Standard & Poor’s (S&P) information transparencymeasurement criteria to gaugeinformation transparency of selected companies. Companies’ annual reports are used in S&P research. However,from the investor’s point of view, transparency information can be obtained not only from the annual report but alsofrom other public sources, such as the company’s web site and the Taiwanese SecurityExchange Committee andTaiwan Economic Journal databases. Therefore, this study supplements S&P criteria with information gathered fromall public materials in order to obtain more comprehensive transparency information. The results indicate that board
size, board ownership, institution ownership, financial transparency, information disclosure, and board andmanagement structure and process have significant relationships with operating performance. The results of thisstudy also support that information transparency is one of the mostimportant indicators for evaluating corporateperformance.
INTRODUCTION
Recent accounting scandals have renewed attention to corporate transparency. According to signaling theory,under information asymmetry, corporations with superior information transparency signal better corporategovernance. Prior research also indicates that corporations that have better corporate governance signal betterperformance. This study provides an empirical analysis of the relationship between information transparency andcorporate governance in Taiwan’s high-tech industry.
LITERATURE REVIEW
Signaling Theory
The theory base of this study is signaling theory. Spence (1973) states that if information asymmetry existsbetween a company’s managers and investors, the company can provide information to the investor in order toeliminate the asymmetry. In other words, if information asymmetry exists, there is no way for the investor tounderstand the real situation of the company’s operations. Priorresearch indicates that investors rely on theinformation sent out from the company to make investment decisions (Leland and Pyle, 1977; Ross, 1977;Bhattacharya, 1979; Ambarish, John and Williams, 1987; Poitevin, 1990; Ravid and Saring,1991). In practice,companies with good operating performance often disclose information to the public to promote positiveimpressions of their company.Corporate Governance and Operating Performance
Yeh, Lee, and Ko (2002) state that major contributions of corp
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