Incorporating Institutional Change Into An Institutional Corporate Governance Model For Taiwan and Hong Kong Listed Companies

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Keywords: corporate governance, institutional corporate governance frameworks, institution theory, institutional change

Abstract: Abstract Research Question/Issue: Most research in corporate governance (“CG”) in the past decades focused on the internal governance of corporations, such as the board structure or board process, and its relationship with corporations’ performances. While there are studies investigating the institutional determinants of a single country or the impact of changes in specific institutions, say, legal, on the effectiveness of CG, there is a lack of research investigating the institutional CG frameworks across nations/societies. This study attempts to explain which societies’ institutions (comprising legal, regulatory, financial market, technological, and socio-cultural institutions) and how their changes affect the effectiveness of the CG systems for listed corporations in Taiwan and Hong Kong.

Research Findings/Insights: Through documentary analysis and drawing on ten in-depth semi-structured interviews with regulators, academics, legal or corporate governance practitioners, and institutional investment players, the findings suggest that the changes in the regulatory CG institution driven by institutional investment players contribute the most to the effectiveness of the CG systems in both Taiwan and Hong Kong. Despite its common law system, the regulatory CG institution in Hong Kong has adopted a rule-based approach, kind of like Taiwan’s civil law system. Further, Hong Kong’s stringent CG regulation on “connected transactions” addresses the “principal-principal” issue of protecting the minority shareholders. On the other hand, Taiwan’s ability to bring civil litigations through its Securities and Futures Investors Protection Centre against the wrongdoers and its introduction of the “Commercial Court” to accelerate business litigations significantly enhance the enforcement regime and, thus, the effectiveness of its CG system. The findings also suggest that the technological institution (including the application of AI) has significantly enhanced the efficiency of the CG systems utilizing big data analytics and disruptions resolutions caused by cyber-attacks.

Theoretical/Academic Implications: This study adds to the literature on comparative corporate governance and institutional changes. It adopts a contingency model to better understand the interactions of different elements within the institutional CG frameworks of different economies. It analyzes how institutional changes driven by policymakers, regulatory bodies, professional associations, etc., impact the CG effectiveness for listed companies across two societies.

Practitioner/Policy Implications: This study draws policymakers’ attention to the critical institutional elements affecting the institutional CG framework for listed companies, which could drive listed companies to adopt more effective or efficient CG practices.

Keywords: corporate governance, institutional corporate governance frameworks, institution theory, institutional change.