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On the Association between Executive Stock Bonus and Voluntary Establishment of Independent Directors and Supervisors -- Evidence from Taiwan
Hsin - Chi Chen,
National Taipei University
Chunghuey Linda Huang, National Taipei University
ABSTRACT. While most of the firms in developed countries grant stock options to their executives for enhancing long-term performance, firms in Taiwan generally distribute stocks to executives as bonus. Besides, in Taiwan company ownership is concentrated in families, and families take active roles in management. As the establishment of independent directors and supervisors is a relatively new corporate governance mechanism being introduced in Taiwan, it provides a natural setting to examine whether this newly introduced corporate governance mechanism is able to perform its function in restraining distributing excess stock bonus to executives. The results show that there is a negative association between the independence of the board of directors and the ratio of executive stock bonus to current earnings, especially when firms’ stocks do not perform well. We also find that the restraining function of board independence is more effective in non-family- controlled companies.
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