The Determinants of the Directorships Held by Independent Directors and Supervisors and the Impact of Directorships on Firm Performance
In 2006, in order to improve the corporate governance systems and enhance its market competitive capabilities, The Security Exchange Commission (TSEC) decreed that for publicly listed companies, the Board of Directors should have at least two independent directors and can not hold less than 1/3 of the total directorships. To avoid worsening the quality of supervising, TSEC stipulated that the independent directors should not hold more than three independent directorships of other publicly listed companies. The main purpose of this study is to explore the determinants of the directorships held by independent directors and the relation between the firm performance and directorships held by independent directors. In this study, the sample is the electronic industry with at least one independent director and one independent supervisor in the Taiwan Stock Exchange Corporate (TSEC) and Over-the-Counter market (OTC) from 2003 to 2005. Our empirical results show: 1. Independent directors with the qualification of experts ,masters or top managers in other companies and average firm size are significantly positively associated with the number of directorships they hold. Average past performance of the firms for which independent directors serve is significantly negatively associated with the number of directorships they hold. 2. The existence of a majority of busy independent directors is significantly negatively associated with firm performance. 3. The existence of a majority of busy independent directors worsens the negative effect of non-independent of supervisor on firm performance. 4. The existence of a majority of busy independent directors worsens the negative effect of powerful managers on firm performance. 5. The existence of a majority of busy independent directors worsens the negative effect of the deviation of controlling shareholders’ cash flow rights from voting rights on firm performance.
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