Abstract
We established a set of corporate governance assessment indices for examining the potential intermediary role of corporate governance in the relationship between firm performance and risk; furthermore, we identified the key corporate governance variables associated with both firm performance and risk based on 2008–2012 empirical evidence from Taiwan. The results indicate that corporate governance has a suppressed mediating effect on the relationship between firm performance and risk both during and after the financial crisis. Moreover, especially during a financial crisis, corporate governance has a negative moderating effect on the relationship between firm performance and risk; therefore, it acts as a risk buffer to protect companies. Our empirical results also provide evidence that listed companies in Taiwan with higher levels of corporate governance report high firm performance and low firm risk. Based on the findings, we recommend that decision makers considering both value creation and risk control focus on formulating corporate governance strategies, with particular attention paid to annual general meetings participation, chairperson and chief executive officer split, board of directors composition, director remuneration and discipline, and transparency of board structure and ownership information.
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Appendix: Corporate governance questionnaire
Appendix: Corporate governance questionnaire
Questions (measurement indices) | Abbreviated name | Description |
|---|---|---|
1 Days in advance that annual general meeting (AGM) materials are delivered to shareholders | A1 | Number of days that AGM material is delivered to shareholders in advance of the meeting, converted to quartile scale of 3, 2, 1, and 0 from for the lowest number to the highest number, respectively |
2 AGM minutes and follow-up events are made known to shareholders | A2 | CG scorea = 3 if answer is yes, 0 otherwise |
3 CEO, chairperson, and other members of the board of directors are present at the AGM for answering shareholder questions | A3 | Percentage of directors and CEO attendances in AGM, converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
4 Company current and future dividend payment policy is made known to shareholders | A4 | CG score = 3 if answer is yes, 0 otherwise |
5 Controlling shareholder shareholding percentage | B1 | Percentage of total outstanding shares held by controlling shareholders, converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
6 The controlling shareholder’s control over company and whether the control is equivalent to the controlling shareholder’s investment in the company | B2 | Cash flow rights over controlling shareholders’ shareholding ratio,b converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
7 The chairperson and CEO are family members of the company’s controlling party | C1 | CG score = 0 if answer is yes, 3 otherwise |
8 One person serves concurrently as chairperson and CEO | C2 | CG score = 0 if answer is yes, 3 otherwise |
9 The percentage of BOD members who have no relationship with the controlling party or the controlling family | D1 | Percentage of non-controlling family directors on the board, converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
10 The percentage of BOD members who have no substantive relationship with the other BOD members | D2 | Percentage of total members of BOD who have no substantive relationship with the other members of BOD, converted to quartile scale of 3, 2, 1, and 0 from for the highest number to the lowest number, respectively |
11 The percentage of independent directors on the BOD | D3 | Percentage of independent directors on the BOD, converted to quartile scale 3, 2, 1, and 0 from for the highest to the lowest respectively. |
12 The percentage of non-executive directors | D4 | Percentage of non-executive directors, converted to quartile scale 3, 2, 1, and 0 from for the highest to the lowest respectively |
13 Any member of BOD is suspected of violating securities-related regulations | E1 | CG score = 0 if answer is yes, = 3, otherwise |
14 BOD remuneration policy links remuneration to corporate performance or conforms to industry norms | E2 | Based on company’s financial report, calculate directors’ remuneration as a percentage of the company’s EPS: = 3 if that percentage is less than the average in the same industry; = 0 otherwise |
15 The frequency of persons rotating or leaving for certain significant positions, such as chairperson, chief financial officer, chief accounting officer, and chief internal auditors | E3 | The frequency of persons rotating or leaving on some significant positions is 0, 1, 2 and more than 2 = 3, 2, 1, 0 |
16 BOD members concurrently serve as BOD members of three other companies | E4 | Directors serving less than 3 companies over the total number of the directors on the board, converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
17 Independent directors are involved in BOD meeting materials | F1 | CG score = 3 if answer is yes, 0 otherwise |
18 Directors continue professional education and learn new regulations | F2 | Number of training or educational courses hours divided by the total number of directors, converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
19 BOD complies with board meeting rules | F3 | CG score = 3 if answer is yes, 0 otherwise |
20 BOD meeting attendance | F4 | Percentage of attendance of directors at the board meetings, converted to quartile scale of 3, 2, 1, and 0 from for the highest to the lowest, respectively |
21 Company annual report discloses the 10 biggest shareholders’ names and their ownership percentages | G1 | CG score = 3 if answer is yes, 0 otherwise |
22 Company annual report discloses the 10 biggest shareholders and their affiliation with each other | G2 | CG score = 3 if answer is yes, 0 otherwise |
23 Company annual report discloses the controlling legal person’s name and his representatives as BOD members | G3 | CG score = 3 if answer is yes, 0 otherwise |
24 Company annual report discloses attendance by directors, independent directors and supervisors at BOD meetings | G4 | CG score = 3 if answer is yes, 0 otherwise |
25 Company annual report discloses the operations of the BOD and the audit committee | G5 | CG score = 3 if answer is yes, 0 otherwise |
26 Company annual report discloses the company’s remuneration of BOD members, supervisors and CEO | G6 | CG score = 3 if answer is yes, 0 otherwise |
27 Company annual report discloses key industrial sector performance indicators | H1 | CG score = 3 if answer is yes, 0 otherwise |
28 Company annual report discloses risk management policy | H2 | CG score = 3 if answer is yes, 0 otherwise |
29 Company annual report discloses risk management infrastructure | H3 | CG score = 3 if answer is yes, 0 otherwise |
30 Company annual report discloses company affiliates or company family tree with ownership percentages | H4 | CG score = 3 if answer is yes, 0 otherwise |
31 Company annual report discloses company endorsements or loans to related parties and the trading of financial instruments | H5 | CG score = 3 if answer is yes, 0 otherwise |
32 Company website has an investor relations section for investors’ questions/responses | I1 | CG score = 3 if answer is yes, 0 otherwise |
33 Company establishes an investor relations department | I2 | CG score = 3 if answer is yes, 0 otherwise. |
34 The company has not been severely punished for environmental violations | I3 | CG score = 3 if answer is yes, 0 otherwise |
35 The company has measures and policies to enhance social responsibility | I4 | CG score = 3 if answer is yes, 0 otherwise |
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Chang, CS., Yu, SW. & Hung, CH. Firm risk and performance: the role of corporate governance. Rev Manag Sci 9, 141–173 (2015). https://doi.org/10.1007/s11846-014-0132-x
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DOI: https://doi.org/10.1007/s11846-014-0132-x