Insider ownership structure and firm performance: A productivity perspective study in Taiwan's electronics industry

Abstract

In the context of agency theory (Jensen and Meckling, 1976. Journal of Financial Economics, 3, 305-360), how insider stock ownership relates to firm performance is explored in this paper. The relevant performance measure used is total factor productivity. Insiders are classified into executives, board members and blockholders so as to facilitate a detailed study. Five-year (1996-2000) panel data of 333 Taiwanese listed electronics firms are examined. It is observed that total insider ownership remains steady while the executive-to-insider holding ratio increases significantly. In terms of the effect on total factor productivity, neither the total insider ownership nor the board-to-insider holding ratio shows any influence on productivity. However, productivity first decreases then increases with the executive-to-insider holding ratio, forming a U-shaped relationship. The results indicate that stock ownership of top officers in high-tech firms should be encouraged to enhance productivity.