One of the most important challenges to modern corporate governance is constraining controlling s... more One of the most important challenges to modern corporate governance is constraining controlling shareholders from tunneling corporate resources at a cost to non-controlling shareholders. Related party transactions (RPTs) were proven by empirical studies as a major channel for tunneling, and the Organisation for Economic Co-opearatoin and Development (OECD) has stressed the challenge of abusive RPTs to Asian corporate governance. This paper serves an initial attempt to empirically assess the extent to which independent directors in Taiwan constrain tunneling. Taiwan serves as an appropriate jurisdiction for research in that private benefits agency problems are prevalent among Taiwanese public companies and independent directors were newly introduced to Taiwan’s corporate boards, which traditionally follow the dual-board system. Nevertheless, the results are daunting. RPTs among Taiwanese public companies are common but rarely monitored by the board. Interview results further confirm ...
In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion in... more In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion initial public offering (IPO), the largest IPO ever, on New York Stock Exchange. Alibaba’s IPO success witnessed a wave among Chinese Internet companies to raise capital in the U.S capital market. A significant number of these companies have employed a novel but poorly understood corporate ownership and control mechanism—the variable interest entity (VIE) structure and/or the disproportional control structure. The VIE structure was created in response to the Chinese restriction on foreign investments; however, it carries the risk of being declared illegal under Chinese law. The disproportional control structure, usually in the form of dual-class shares, helps founders or controlling shareholders maintain control post-IPO with less equity contribution. Around 30 percent of U.S.-listed Chinese companies adopted a dual-class share structure or similar mechanism to enhance insider control. The...
Since the 1990s, Hong Kong has been working hard to improve its corporate governance system. Alth... more Since the 1990s, Hong Kong has been working hard to improve its corporate governance system. Although a common law jurisdiction, its stock market differs from the NYSE and LSE, as there has always been a large concentration of ownership which brings a set of different agency problems, namely expropriation of minority interests rather than managerial abuses. But at the same time, there is an increasing number of mainland state-owned enterprises (SOEs) in the market which brings all types of agency problems, namely managerial abuses, expropriation of minority interest, and the failure to pursue shareholder value maximization. To add to the complication, 85 percent of the listed companies are not incorporated in Hong Kong, which means that many provisions in the Companies Ordinance do not apply. Thus, the regulators including the exchange and the Securities and Futures Commission (SFC) have to think outside the box to come up with effective measures to improve corporate governance. By ...
The United States (US) government and judiciary have long been trying to understand the state-bac... more The United States (US) government and judiciary have long been trying to understand the state-backed or state-influenced actions behind Chinese enterprises that threaten US businesses and economy. In 2015, China launched a new round of stateowned enterprise (SOE) reform, a key measure of which was to enhance the Chinese Communist Party’s (CCP) influence in business and the economy. The so-called “partybuilding” (dangjian) reform, requiring all SOEs to formally write corporate party organizations into their corporate charters, provides an opportunity to glimpse into the power dynamics between the CCP and the business sector. By presenting the four-year charter amendment data from 2015 through 2018, this paper documents the responses of minority and foreign shareholders and finds evidence of managerial resistance from the SOEs to the amendment. Foreign and minority shareholders expressed their concerns about enhancing the party’s influence by voting against the amendments; however, th...
The “one-share one-vote principle,” which states that a shareholder’s voting power is proportiona... more The “one-share one-vote principle,” which states that a shareholder’s voting power is proportionate to his or her economic right, is one of the most fundamental rules in modern corporate law. However, in reality, controlling shareholders often obtain voting rights in excess of their economic rights through control-enhancing mechanisms, allowing them to leverage control over the firm. Empirical studies indicate that leveraged corporate control is prevalent among listed companies of various countries, yet, to date, many countries still disagree on a regulatory framework. The EU and OECD conducted studies concerning the regulatory policy over control-enhancing mechanisms several years ago. However, failing to reach a consensus, the reports only advised governments to enhance disclosure and transparency. In recent years, entrepreneurs hoping to maintain their control after public listing have sought to utilize dual-class share structures to leverage corporate control when going public. ...
We focus on the recent Dangjian (“party-building”) reform, a major measure taken by the Chinese C... more We focus on the recent Dangjian (“party-building”) reform, a major measure taken by the Chinese Communist Party (CCP) to strengthen its leadership position in Chinese state-owned enterprises (SOEs). We hypothesize that, given the unique governance and ownership structure of Chinese firms, there is a trade-off between the political costs and benefits of the mitigated agency problems. We report negative investor reactions to privately-owned enterprises (POEs) after the Dangjian reform announcements, consistent with the hypothesis that strengthening party control over business is harmful to business efficacy and firm value. We also find evidence that the increased risks of political influence due to the reform undermine the value of SOEs that are considered more independent of political power (i.e., those under corporate pyramids or cross-listed on a foreign market). In addition, the market reacted negatively when firms incorporated the provision to adopt the party’s cadre management principle, which allows the CCP to intervene in firm management.
This study explores the associations between human capital resources, firm performance, and corpo... more This study explores the associations between human capital resources, firm performance, and corporate governance mechanisms. Based on the survey results of the “50 most attractive employers” conducted by Universum Global 2010, human resource, performance, and governance data was collected for the period from 2007 to 2011. Drawing on the strategic human capital and resource management, international governance, and organizational literature, this study examines the extent to which corporate governance mechanisms moderate the relationships between firm performance and human capital resources and posits that human resource performance is positively associated with corporate governance mechanisms that support and enhance strategic human resource management policies. Panel regression analyses are conducted to test the study’s hypotheses. The results show that human capital resources are positively related to firm performance, and that some corporate governance mechanisms may negatively affect performance when interacted with human capital variables. Furthermore, human resource performance is significantly related to some governance mechanisms, with interaction effects between human capital and other organizational attributes showing differential impacts. Overall, the results support a contingency-based view of strategic human resource management in the context of large and attractive global employers and highlight the importance of governance design in supporting investments and deploying human resources and capabilities at the firm and industry levels and across national boundaries.
Abstract Corporate scholars have long championed the use of mandatory cumulative voting in develo... more Abstract Corporate scholars have long championed the use of mandatory cumulative voting in developing countries. Yet, in comparison to majority or plurality voting, we know very little about its effectiveness. Even though cumulative voting is allowed in most jurisdictions, in practice it is not widely used. Taiwan stands out as a unique jurisdiction which mandates cumulative voting on all companies. Therefore, Taiwan is the only jurisdiction, to the best of our knowledge, that can be used to test the causal effect of cumulative voting on director election. Taking advantage of an exogenous legal change that occurred in Taiwanese corporate law in December 2011, we use panel data on 640 publicly traded companies from 2009 to 2015 in a difference-in-differences framework to tease out the effect of cumulative voting. From 2001 to 2011, cumulative voting was the default rule, and 20 companies opted for majority voting. While directors and supervisors are elected every three years, not all companies change boards in the same year. Fixed-effect panel regression models show that in the 2012 election—about six months after the legal reform—the cumulative voting rule appears to have weakened the controlling shareholders’ control of the companies that had previously opted for majority voting. The controlling shareholders’ control in the 2013, 2014, and 2015 elections, however, did not decrease. The take-away lesson is that mandating cumulative voting may not create a long-term effect because controlling shareholders find other means to maintain influence. Policymakers should leave the governance decisions to the firm and focus on rules that could restrain private benefits of control and enhance transparency to rein in controlling shareholders.
Competing theories of default rules and menus in contract law and corporate law provide different... more Competing theories of default rules and menus in contract law and corporate law provide different accounts of their effects. However, empirical studies are scant, and all focus on American law. Given that corporate ownership outside of the U.S. is usually concentrated, and institutional settings are vastly different, one might wonder whether corporate law and economic theories on default rules and menus aptly explain corporate practices in other countries. To that end, this article analyzes a unique dataset of 498 randomly sampled and hand-coded charters of public firms in China, Hong Kong, and Taiwan. While the data do not enable us to make causal inferences, we make descriptive contribution to the literature by examining whether corporate practices in the studied jurisdictions are consistent with the American theories. The major findings are that firms often opted into menus and rarely opted out of default rules without menus, thereby supporting the minimization of transaction cost theory. However, Chinese firms may follow default rules for non-economic reasons. Hansmann’s delegation theory explains the short corporate charters observed in Taiwan, but not those in China and Hong Kong. Corporations in China, Hong Kong, and Taiwan do not appear to be systematically more pro-minority or pro-controller than their jurisdictions’ corporate laws. This contradicts the principal-agent theory.
One of the most important challenges to modern corporate governance is constraining controlling s... more One of the most important challenges to modern corporate governance is constraining controlling shareholders from tunneling corporate resources at a cost to non-controlling shareholders. Related party transactions (RPTs) were proven by empirical studies as a major channel for tunneling, and the Organisation for Economic Co-opearatoin and Development (OECD) has stressed the challenge of abusive RPTs to Asian corporate governance. This paper serves an initial attempt to empirically assess the extent to which independent directors in Taiwan constrain tunneling. Taiwan serves as an appropriate jurisdiction for research in that private benefits agency problems are prevalent among Taiwanese public companies and independent directors were newly introduced to Taiwan’s corporate boards, which traditionally follow the dual-board system. Nevertheless, the results are daunting. RPTs among Taiwanese public companies are common but rarely monitored by the board. Interview results further confirm ...
In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion in... more In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion initial public offering (IPO), the largest IPO ever, on New York Stock Exchange. Alibaba’s IPO success witnessed a wave among Chinese Internet companies to raise capital in the U.S capital market. A significant number of these companies have employed a novel but poorly understood corporate ownership and control mechanism—the variable interest entity (VIE) structure and/or the disproportional control structure. The VIE structure was created in response to the Chinese restriction on foreign investments; however, it carries the risk of being declared illegal under Chinese law. The disproportional control structure, usually in the form of dual-class shares, helps founders or controlling shareholders maintain control post-IPO with less equity contribution. Around 30 percent of U.S.-listed Chinese companies adopted a dual-class share structure or similar mechanism to enhance insider control. The...
Since the 1990s, Hong Kong has been working hard to improve its corporate governance system. Alth... more Since the 1990s, Hong Kong has been working hard to improve its corporate governance system. Although a common law jurisdiction, its stock market differs from the NYSE and LSE, as there has always been a large concentration of ownership which brings a set of different agency problems, namely expropriation of minority interests rather than managerial abuses. But at the same time, there is an increasing number of mainland state-owned enterprises (SOEs) in the market which brings all types of agency problems, namely managerial abuses, expropriation of minority interest, and the failure to pursue shareholder value maximization. To add to the complication, 85 percent of the listed companies are not incorporated in Hong Kong, which means that many provisions in the Companies Ordinance do not apply. Thus, the regulators including the exchange and the Securities and Futures Commission (SFC) have to think outside the box to come up with effective measures to improve corporate governance. By ...
The United States (US) government and judiciary have long been trying to understand the state-bac... more The United States (US) government and judiciary have long been trying to understand the state-backed or state-influenced actions behind Chinese enterprises that threaten US businesses and economy. In 2015, China launched a new round of stateowned enterprise (SOE) reform, a key measure of which was to enhance the Chinese Communist Party’s (CCP) influence in business and the economy. The so-called “partybuilding” (dangjian) reform, requiring all SOEs to formally write corporate party organizations into their corporate charters, provides an opportunity to glimpse into the power dynamics between the CCP and the business sector. By presenting the four-year charter amendment data from 2015 through 2018, this paper documents the responses of minority and foreign shareholders and finds evidence of managerial resistance from the SOEs to the amendment. Foreign and minority shareholders expressed their concerns about enhancing the party’s influence by voting against the amendments; however, th...
The “one-share one-vote principle,” which states that a shareholder’s voting power is proportiona... more The “one-share one-vote principle,” which states that a shareholder’s voting power is proportionate to his or her economic right, is one of the most fundamental rules in modern corporate law. However, in reality, controlling shareholders often obtain voting rights in excess of their economic rights through control-enhancing mechanisms, allowing them to leverage control over the firm. Empirical studies indicate that leveraged corporate control is prevalent among listed companies of various countries, yet, to date, many countries still disagree on a regulatory framework. The EU and OECD conducted studies concerning the regulatory policy over control-enhancing mechanisms several years ago. However, failing to reach a consensus, the reports only advised governments to enhance disclosure and transparency. In recent years, entrepreneurs hoping to maintain their control after public listing have sought to utilize dual-class share structures to leverage corporate control when going public. ...
We focus on the recent Dangjian (“party-building”) reform, a major measure taken by the Chinese C... more We focus on the recent Dangjian (“party-building”) reform, a major measure taken by the Chinese Communist Party (CCP) to strengthen its leadership position in Chinese state-owned enterprises (SOEs). We hypothesize that, given the unique governance and ownership structure of Chinese firms, there is a trade-off between the political costs and benefits of the mitigated agency problems. We report negative investor reactions to privately-owned enterprises (POEs) after the Dangjian reform announcements, consistent with the hypothesis that strengthening party control over business is harmful to business efficacy and firm value. We also find evidence that the increased risks of political influence due to the reform undermine the value of SOEs that are considered more independent of political power (i.e., those under corporate pyramids or cross-listed on a foreign market). In addition, the market reacted negatively when firms incorporated the provision to adopt the party’s cadre management principle, which allows the CCP to intervene in firm management.
This study explores the associations between human capital resources, firm performance, and corpo... more This study explores the associations between human capital resources, firm performance, and corporate governance mechanisms. Based on the survey results of the “50 most attractive employers” conducted by Universum Global 2010, human resource, performance, and governance data was collected for the period from 2007 to 2011. Drawing on the strategic human capital and resource management, international governance, and organizational literature, this study examines the extent to which corporate governance mechanisms moderate the relationships between firm performance and human capital resources and posits that human resource performance is positively associated with corporate governance mechanisms that support and enhance strategic human resource management policies. Panel regression analyses are conducted to test the study’s hypotheses. The results show that human capital resources are positively related to firm performance, and that some corporate governance mechanisms may negatively affect performance when interacted with human capital variables. Furthermore, human resource performance is significantly related to some governance mechanisms, with interaction effects between human capital and other organizational attributes showing differential impacts. Overall, the results support a contingency-based view of strategic human resource management in the context of large and attractive global employers and highlight the importance of governance design in supporting investments and deploying human resources and capabilities at the firm and industry levels and across national boundaries.
Abstract Corporate scholars have long championed the use of mandatory cumulative voting in develo... more Abstract Corporate scholars have long championed the use of mandatory cumulative voting in developing countries. Yet, in comparison to majority or plurality voting, we know very little about its effectiveness. Even though cumulative voting is allowed in most jurisdictions, in practice it is not widely used. Taiwan stands out as a unique jurisdiction which mandates cumulative voting on all companies. Therefore, Taiwan is the only jurisdiction, to the best of our knowledge, that can be used to test the causal effect of cumulative voting on director election. Taking advantage of an exogenous legal change that occurred in Taiwanese corporate law in December 2011, we use panel data on 640 publicly traded companies from 2009 to 2015 in a difference-in-differences framework to tease out the effect of cumulative voting. From 2001 to 2011, cumulative voting was the default rule, and 20 companies opted for majority voting. While directors and supervisors are elected every three years, not all companies change boards in the same year. Fixed-effect panel regression models show that in the 2012 election—about six months after the legal reform—the cumulative voting rule appears to have weakened the controlling shareholders’ control of the companies that had previously opted for majority voting. The controlling shareholders’ control in the 2013, 2014, and 2015 elections, however, did not decrease. The take-away lesson is that mandating cumulative voting may not create a long-term effect because controlling shareholders find other means to maintain influence. Policymakers should leave the governance decisions to the firm and focus on rules that could restrain private benefits of control and enhance transparency to rein in controlling shareholders.
Competing theories of default rules and menus in contract law and corporate law provide different... more Competing theories of default rules and menus in contract law and corporate law provide different accounts of their effects. However, empirical studies are scant, and all focus on American law. Given that corporate ownership outside of the U.S. is usually concentrated, and institutional settings are vastly different, one might wonder whether corporate law and economic theories on default rules and menus aptly explain corporate practices in other countries. To that end, this article analyzes a unique dataset of 498 randomly sampled and hand-coded charters of public firms in China, Hong Kong, and Taiwan. While the data do not enable us to make causal inferences, we make descriptive contribution to the literature by examining whether corporate practices in the studied jurisdictions are consistent with the American theories. The major findings are that firms often opted into menus and rarely opted out of default rules without menus, thereby supporting the minimization of transaction cost theory. However, Chinese firms may follow default rules for non-economic reasons. Hansmann’s delegation theory explains the short corporate charters observed in Taiwan, but not those in China and Hong Kong. Corporations in China, Hong Kong, and Taiwan do not appear to be systematically more pro-minority or pro-controller than their jurisdictions’ corporate laws. This contradicts the principal-agent theory.
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Papers by Lauren Yu-Hsin Lin