Corporate governance and political involvement in Japan and Taiwan

Abstract

This thesis examines issues associated with the interaction of government and financial institutions in the operation of a company through the board of directors in Japan and Taiwan. Specially, it highlights the relationships between a company, the main bank system, and the system of amakudari (appointing retired bureaucrats to the board of public companies). The focus is on why government and financial institutions intervene in the operation of a company, and whether the intervention of government and financial institutions is related to the subsequent operation of a company through the board of directors. The empirical results suggest that governments and financial institutions tend to appoint representatives to the board in order to help troubled companies. On the other hand, a negative relationship is established between the presence of retired bureaucrats (amakudari) and subsequent firm performance and the degree of internationalisation. Thus, while the system of amakudari may use its power in an attempt to save troubled companies, the argument that monitoring ability of the board may be jeopardised to the detriment of firm performance and the degree of internationalisation is supported. The empirical results also demonstrate that intervention of governments and financial institutions is an integral part of the operation a company in Japan and Taiwan.Furthermore, with the latest reform of corporate governance in Taiwan, the thesis also introduces the institutional background of incentive payments and sub-committees and examines whether the level and the structure of top executives' compensation and incentive payments are related to firm performance and the corporate governance mechanism. The empirical results indicate that the alignment between executives' and shareholders' interests is not less efficient in government-linked companies (GLCs) compared to non-government-linked companies (non-GLCs). Additionally, although the Taiwanese authorities have started to reform corporate governance in Taiwan, the grants of incentive payments to top executives are not necessarily related to performance or the corporate governance mechanism, such as the ratio of outside directors.