Earnings quality and corporate governance: Evidence from Taiwan

Abstract

The present study investigates the relationship between earnings quality and corporate governance mechanisms in Taiwan namely, independent director, CEO/Chair duality, board size, institutional ownership and managerial ownership. Additionally, this study investigates how these relationships are affected by Taiwanese founding family impact. For the purpose of this study, a sample of non-financial firms listed in TWSE/GTSM during the period of 2005-2008 is investigated. Both Modified Jones model and Modified Dechow and Dichev Model are used to measure the degree of earnings quality. The empirical results suggest that higher domestic financial institutional ownership leads to higher quality of earnings in Taiwan; higher domestic non-financial institutional ownership leads to lower quality of earnings. Additionally, results show that the separation of CEO and board chair leads to higher earnings quality in family-involved firms (firms with two or more family directors) and larger boards lead to higher earnings quality in non-family-involved firms. No evidence has
been found that independent director or foreign institutional ownership or managerial ownership is related to earnings quality or is affected by Taiwanese family impact.
This study documented evidence that domestic financial institutional investors in
Taiwan can serve as effective monitors as predicted by agency theory. Since the
relationships between earnings quality and some of the mechanisms (i.e. CEO/Chair duality and board size) are affected by family impact, Taiwanese regulatory amendments in the future could be made based on family and non-family firms respectively for better effectiveness of these mechanisms.

Date of Award	Jul 2014
Original language	English
Awarding Institution	Bangor University
Supervisor	Aziz Jaafar (Supervisor)