Volume 18, Number 1, June 2023
| Corporate Governance Rating and Firm Performance: Evidence from Taiwan |
Abstract
After the Asian financial crises, scholars started to focus on the importance of corporate governance which is the processes, practices and policies that a company relies on to make formal decisions and to manage the company. Corporate governance ratings act as a corporate governance tool by providing information to investors. Investors therefore expect that the ratings information will be incorporated in firm returns or value. This study examines the relationship between corporate governance rating and firm performance in Taiwan during the years 2014–2018. We use the Taiwan Stock Exchange (TWSE) corporate governance rating of a firm’s corporate governance structure and analyze this rating in relation to the firm’s operating performance. Accounting, based performance measures of firms-return on asset (ROA), return on equity (ROE) and earnings per share (EPS), were used to compare with TWSE corporate governance evaluation based on five sub-indices that are “Protecting Shareholder Rights and Interests”, “Treating Shareholders Equitably”, “Enhancing Board Composition and Operation”, “Increasing Information Transparency”, and “Putting Corporate Social Responsibility into Practice”. The results show that corporate governance does matter in Taiwan. The study shows that better governed firms measured by high corporate governance rating have better performance in Taiwan.
Keywords: Corporate Governance, Corporate Governance Rating, Firm Performance
JEL Classification: G14, G23