An Empirical Analysis of Co-investment Between the Insiders and Parents in Subsidiaries

• Main Authors: Chen, Mei-ching, 陳美菁
• Other Authors: Chow, Edward H.
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/47032985468964269075

博士 === 國立政治大學 === 財務管理研究所 === 93 === The large corporations in Taiwan often invest in other firms, namely the parent corporations own equity stakes of their subsidiaries. Interestingly, the insiders of parent corporations (including the directors, supervisors, senior managers and large shareholders of parent corporations) also frequently invest in these subsidiaries at the same time. I name this phenomenon co-investment. With the sample of 74 largest TSE-listed corporations of 17 industries, this empirical paper tries to investigate the causes and impacts of co-investment. The empirical results show that the degree of co-investment is negatively related to the equity stake hold by the parent corporations. The co-investment seems be used as an incentive mechanism, which can encourage insiders to improve the performance of subsidiaries. Insiders co-invest in those business-unrelated subsidiaries more likely, which is consistent with the “diversification hypothesis”. Those parent corporations with more transaction-related subsidiaries (TRS) have higher degree of co-investment, which implies that insiders may take the benefits of tunneling by increase their equity stakes of TRS. There are also some empirical results support that insiders co-invest in subsidiaries to finance the investment need of parents corporations. Although co-investment may reform the return source of insiders and theoretically deteriorate the incentives of insiders, however, this paper finds no strong evidence that co-investment would do harm to the value of parents corporations. One special type of co-investment may increase the performance of subsidiary portfolio and the value of parent corporations.