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The agency problem of listed companies in East Asia is closely related to their typically concentrated ownership structures. Tight control creates an entrenchment problem that allows the controlling owners' self-interested behaviors to go unchallenged internally by the boards of directors or externally by takeover markets. The primary objective of this paper is to explore the association between the ownership and control structure and innovation. The ownership and control structure is measured first as the divergence between the ultimate owner's voting rights and the ultimate owner's cash flow rights, and second by the presence of ultimately controlling shareholder's family member as CEO or Chairman of the board, or both. Innovation is measured by patent quantity and patent quality. This paper uses patents granted by the U.S. Patent and Trademark Office (USPTO) to measure innovation activities. We find that innovation is significantly and negatively related to the level of agency problems. We further find that innovation is lower for firms whose controlling owner is also either the chief executive officer or the chair of the board of directors. Our findings appear to be robust with respect to examining patent count and patent quality variables.

The primary objective of this study is to investigate the impact of corporate internationalization on earnings management. We also explore the mitigating roles of corporate ownership structure, as measured by divergence of controlling owner's control and cash rights, and the proportion of firms that operate in common law countries on earnings management. Using a sample drawn from Taiwan, we find that greater corporate internationalization is associated with a higher level of earnings management, as proxied by discretionary accruals and the likelihood of exactly meeting or just beating analyst forecast. Corporate internationalization is measured by the ratio of foreign assets to total assets, foreign operational country scope, and the number of foreign investees, respectively. In addition, we find that companies can reduce the negative effects of internationalization on earnings management by improving their corporate ownership structures or investing in a higher proportion of common law countries where there is a better investor legal protection environment and higher information transparency.

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Innovation capital are typically expensed and/or unrecognized as assets under current generally accepted accounting principles. This results in accounting-related information asymmetry. This paper examines the association of innovation capital (as measured here by the proxies of R&D expenditures and granted patents) and initial public offerings (IPO) anomalies. These anomalies include initial IPO underpricing, duration of honeymoon (a distinct feature of the Taiwanese IPO environment), and long-term performance. The theoretical model underlying this research is a signaling model. The results indicate that more innovative firms are more likely to be underpriced, and have longer honeymoon periods than less innovative firms. Further, the more innovative firms have positive and growing long-term market-adjusted returns. This stands in contrast to the declining long-term stock performance of initial public offering firms that is evidenced in the literature. We conclude that pre-IPO research and development expenditures disclosed in the IPO prospectus, official monthly reports of newly developed patents released to the public, and the frequency of patent citations significantly signal both underpricing and future market performance of IPO firms in Taiwan. Copyright Springer Science + Business Media, LLC 2006Anomalies, Initial public offerings, Innovation capital, Patent, R&D, Signaling,