The Role of Management Ownership in Bank Governance: Evidence from Taiwan

Abstract

The purpose of this paper is to investigate the relationships that banks' managerial ownership has with financial performance and firm value. We use a sample of 35 Taiwan domestic banks for the period 2005-2014. In the pooled OLS regression analysis, we find that the banks' performance and market value fall as the level of management ownership rises, supporting the managerial entrenchment hypothesis. Moreover, the results show that when the ratio of managerial ownership pledge increases, then financial performance decreases while firm value increases. We conjecture that the positive effect of managerial ownership pledge on market value may be caused by the price maintenance effect of stock pledges. In addition, the evidence shows that there is a higher nonperforming loan ratio in family-dominated banks, and this hints that their loan decisions may have more severe agency problems relative to non-family ones.