Foreign ownership mode, executive compensation structure, and corporate governance: Has the literature missed an important link? Evidence from Taiwanese firms

Kang Rae Cho, Chia-Hsing Huang, and Prasad Padmanabhan
International Business Review, Volume 23, Issue 2, Pages 371–380

We propose an alternate context-based extension to the agency theory-grounded explanation of foreign ownership mode choices proposed in the literature. Using a sample of Taiwanese firms investing in the greater China region over the 2001–2009 period, we show that both economic and non-economic factors influence the choice of foreign ownership mode. In addition, we document that higher institutional ownership percentages motivate Taiwanese firms to select shared ownership in the greater China region. Further, no long term compensation mix/ownership structure link is found. These findings run counter to a theory provided for foreign ownership mode choices of US based firms. Our findings provide support for the validity of stewardship and social capital theory, but not financial incentives-based agency theory, for Taiwanese firms investing in the greater China region.