| Summary: | 碩士 === 靜宜大學 === 財務金融研究所 === 96 === The Taiwan Stock Exchange Corporation Rules executed a new requirement on the independent directors in 2002. This research uses the unique Taiwanese data to examine whether independent directors can mitigate the agency problem by increasing the marginal value of an important asset of the firm: cash holdings. Further, to our best knowledge, this is the first research to test the direct link between the magnitude of over-investment and the marginal value of cash holdings. We create a corporate governance index by using confirmatory principle component analysis to control other mechanism of the corporate governance system. The sample is publicly listed companies in Taiwan Stock Exchange and OTC. Over the period of 1997-2005, the finally sample consists of 6,961 (2,933) firm-year observations for the test of the relation between independent director (over-investment) and the marginal value of cash holdings. The following empirical results are reached. First, on average, firms with independent director and with low growth opportunities have higher marginal value of cash holdings. Second, firms with independent directors are associated with higher marginal value of cash holdings for firms with less growth opportunities or firms in small size scale after controlling the earning, net assets, R&D expenditures, interest expense and liquid assets. Third, firms voluntarily arranging the independent directors are certified increasing the marginal value of cash holdings than other firms. The results are in line with the expectation that independent director mitigate the agency problem and prove marginal value of cash holdings. Finally, the magnitude of over-investment is negatively correlated to the marginal value of cash holding, revealing that the investors value less the marginal value of cash holdings for firms with over-investment.
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