Return Skewness, Real Options, and Corporate Governance

We use the data of Taiwanese firms from 2002Q1 to 2012Q3 to examine the effects of corporate governance and real options on return skewness. Firms with a stronger corporate governance structure (including a higher proportion of largest shareholder ownership and managerial ownership, the more independent board, better transparency, and lower agency costs) tend to have positively skewed returns. In addition, firms that possess real options (valuable social capital, significant market potential, and market power) appear to have positively skewed returns because real options lower transaction costs, promote cooperation among parties, and build the firm’s brand.