With the increasing importance of the business sector in developing countries, like Taiwan, study of the corporate governance structure should be one of the most important research topics. Most studies of family business in Taiwan focus on fiscal issues and the proportion of shares that families actually control. Few have investigated the relational structures among board members and executives. These relational structures, however, are the keys to understanding the nature of Taiwanese businesses, since relationship (guanxi) is a dominant determinant in many important business decisions. Using a longitudinal data set on 198 Taiwan public traded corporations over a 21-year period (1981-2001), this study examines the relationship among CEO turnover, tenure, CEO power, and firm performance.
The findings indicate that even though family control through family members serving as board members and senior managers has been gradually decreasing in Taiwan, our empirical results still show that when the CEO acquires more power through kinship tie with the largest family or the family with absolute control power, the CEO turnover is significantly lower and the tenure is longer. In addition, the results find that if the CEO is not a member of the controlling family, the performance requirements may be relatively strict. These results suggest that controlling families may be willing to sacrifice some degree of corporate profitability in order to retain higher degree of family control over the corporation. Thus, in the case of family-controlled corporations, direct control of the firm by a family member may become an important goal. These empirical results from familial and equity data may provide an interesting perspective on a much debated governance issue.