Family Control, Two-Tier Boards and Firm Performance: Lessons from the Taiwanese Experience

ABSTRACT This study examines the effects of the Taiwanese modified two-tier board of directors and family control on firm performance. Similar to its German origin, the Taiwanese system separates the monitoring role from the strategic planning role of the board. Using firm-level fixed-effects panel analysis, we find evidence that family-ties between the Taiwanese supervisors and the CEOs have undermined the internal monitoring of the Taiwanese firms. Our results suggest that without majority ownership, family control of the internal monitoring mechanism impedes firm performance. The study has three major implications for the search for a more effective corporate governance structure.