Internal Capital Market and Corporate Governance- The Case of Financial Holding Company

• Main Authors: CHEN CHI-AN, 陳麒安
• Other Authors: Pei-Gi Shu
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/04613801304467245614

碩士 === 輔仁大學 === 管理學研究所 === 92 === Ever since Taiwan became a member of the WTO, banks have been faced with challenges from drastic global competitions. The Taiwan Government subsequently legislated the Financial Holding Company Law with an intention to help local financial institutes become bigger, more diversified and possess of supervisory transparency and to survive from global competitions. Competitive ability and internationalization of these financial holding companies are expected to be increased. There were fourteen financial holding companies instituted right after the Law. A controversial issue is that the subsidiaries subordinated to a financial holding company can cross sell products which on one hand is advantageous for a company to pursuit scale of economy while on the other blurs supervisory transparency. We wonder whether the net effect would be beneficial to shareholders of the financial companies. We contrast the financial measures right before and after the Rule of 2000. Five performance variables and proxies for internal capital market were used in investigation. Statistical analysis using paired t-test, Mann-Whitney U-test and regression are applied to conclude. The results of investigating internal capital market show that an increase in trading between interested parties has side effects on the operating performance. Long-term investments are negatively correlated to operating performance. However, diversification does improve a company’s operating performance. We follow the methodology of La Porta et al. (2000) to trace controlling shareholder. The result reveals that operating performance is positively related to the cash flow rights and negatively correlated with the deviation of control rights from cash flow rights of the controlling shareholder. The second largest shareholder provides surveillance function and that is beneficial to company’s performance. We also find that board members do affect the operating performance.