No abstract

This study examines the relationship between the turnover of high-level executives and firm performance in Taiwan. Prior studies of executive turnover focus solely on changes to a firms’ Chief Executive Officer (CEO), Board of Director (BOD) Chair, or Chief Financial Officer (CFO). This study is the first to include the role of Chief Accounting Officers (CAO) in our analysis and investigation of executive turnover and its effect on firm performance. Chief Accounting Officers of Taiwanese firms, are required to certify financial statements and provide assurance of financial reporting, a special requirement unique to Taiwan.  Additionally, our study weighs factors of family-owned business and the tenure of executives against their effect on firm performance. Our results suggest a negative association between executive turnover and accounting performance; market performance of price to book ratio (PB ratio), however, is not significantly related to various types of turnovers except the turnover of the CEO. Moreover, our findings demonstrate that longer management tenure does not lead to improvement in firm performance and may result in negative market valuations.    

Accounting scandals in recent years have exposed that a high risk in business operations and caught the public attention. Thus, the Taiwanese government has strengthened the necessary regulations to protect shareholders’ rights, emphasizing breach of trust by managers and irresponsibility by board of directors (BOD). Situations such as class action lawsuits filed by investors against firms for deficiency in disclosures revealed that firms could purchase directors & officers liability insurance (D&O insurance) to reduce and diversify the potential risks that result in severe harms by management and board decisions. Our study also shows that decisions to purchase D&O insurance may influence the decision making process of BOD and high-level management, and it may even impact the likelihood of management turnover. The purpose of the study is to examine the main determinants that would influence the firm’s decision on whether to purchase D&O insurance. From empirical evidence, we find the purchase of D&O insurance is more likely when firms are greater in BOD independence, higher BOD average compensation, with greater high level management turnover, larger in size, and in the electronics industry. On the other hand, firms are less likely to purchase D&O insurance when there are higher frequencies in change of external auditors, greater deviation of ultimate controlling shareholders cash flow rights and equity control rights, and when firms are with greater in BOD directors serving as firm managers. However, no relationship is found for firms’ D&O insurance purchase relates to information disclosure transparency, and duality of CEO and BOD chairman