A Corporate Life Cycle Analysis on the Relationship between Ownership Structure and Performance: Evidence from the Taiwan Stock Exchange

This study analyzes the relationship between a firm's ownership structure and its performance. Directorial and managerial ownership are two types of ownership. The corporate life cycle stages analyzed in this paper are the growth stage, maturity stage, and the life cycle as a whole. The data was taken from a 1994-2004 panel of 488 manufacturing firms listed on the Taiwan stock exchange. In order to correct endogeneity issues, a simultaneous model is used to analyze the relationship. As a result, in both the growth and maturity stages, directorial ownership is influenced by corporate performance; however, corporate performance does not influence managerial ownership. On the one hand, the paper deciphers an inverted U-shaped relationship between directorial ownership and performance, which suggests optimal ownership shares for directors; on the other hand, a U-shaped relationship between managerial ownership and performance is found. These relationships refer to the alignment and entrenchment effect respectively.