Corporate Ownership Structure and Innovation: Evidence from Taiwan's Electronics Industry

Posted: 13 Dec 2013

See all articles by Chen-lung Chin

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting

Yu-Ju Chen

Asia University

Gary Kleinman

Montclair State University

Picheng Lee

Pace University - Department of Accounting

Date Written: January 12, 2009

Abstract

The agency problem of listed companies in East Asia is closely related to their typically concentrated ownership structures. Tight control creates an entrenchment problem that allows the controlling owners’ self-interested behaviors to go unchallenged internally by the boards of directors or externally by takeover markets. The primary objective of this paper is to explore the association between the ownership and control structure and innovation. The ownership and control structure is measured first as the divergence between the ultimate owner’s voting rights and the ultimate owner's cash flow rights, and second by the composition of the board of directors, calculated as the percentage of the board’s membership that consists of individuals with family ties to the ultimate owner. Innovation is measured by patent quantity and patent quality. This paper uses patents granted by the United States Patent and Trademark Office (USPTO) to measure innovation activities. We find that innovation is significantly and negatively related to the level of agency problems. We further find that innovation is lower for firms whose controlling owner is also either the CEO or chairs the board of directors. Our findings appear to be robust with respect to examining patent count and patent quality variables.

Keywords: ownership structure, innovation, intellectual capital, patent, voting rights, cash flow rights

JEL Classification: M40, M41

Suggested Citation

Chin, Chen-lung and Chen, Yu-Ju and Kleinman, Gary and Lee, Picheng, Corporate Ownership Structure and Innovation: Evidence from Taiwan's Electronics Industry (January 12, 2009). Journal of Accounting, Auditing and Finance, Vol. 24, No. 1, p. 145, 2009; Pace University Accounting Research Paper No. 2013/09. Available at SSRN: https://ssrn.com/abstract=2366975

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan, Taipei
Taiwan

Yu-Ju Chen

Asia University ( email )

500 Liuofeng Rd, Wufeng, Taichung
Taichung
Taiwan

Gary Kleinman

Montclair State University ( email )

NJ 07043
United States

Picheng Lee (Contact Author)

Pace University - Department of Accounting ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

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