||Family or group-owned corporations and informed trading are two features of Taiwan’s capital market. Is there any relationship between the two features? Can we solve this kind of problem by some mechanism of corporate governance? These issues are common concerns for participants of capital markets and government policy makers, therefore, there are many scholars devoting themselves in the related research.|
This study adopts the work of McInish and Wood (1992), who measure informed trading by calculating standardized bid-ask spread. Moreover, some variables, such as trading volume, risk, stock price, company size, and listing market are taken into account because the literature indicates they may affect bid-ask spread. According to the concept of voting rights and cash flow rights introduced by La Porta, Lopez-De-Silanes, Shleifer, and Vishny (2002) and the concept of fraction of cash flow rights on the voting rights introduced by Claessens, Djankov, and Lang (2000), we use the difference ratio, which is one minus the fraction of voting rights over the cash flow rights, to measure the degree of central agency problems. The corporate governance variables, such as board size, the proportion of outside directors, and institutional shareholdings are employed as moderating variables. Multiple regression models are used to test the hypotheses.
According to the test results, we find that the more cash flow rights deviate from voting rights the more informed trading will be and it can be alleviated by increasing board size and hiring big CPA firms for audit purpose; while it can be worsen by adopting more outside directors and institutional shareholdings.