The Relation between Inside Director’s Dual Role and Firm’s Future Performance: Evidence from Publicly-Traded Company in Taiwan

Abstract

Inside directors carry two roles of both directors and managers. Therein, the responsibility of director role of inside directors is to execute supervision function; and that the managerial role is to execute policy-making function. In some cases, the dual role of inside directors will generate competition and cooperation. Therefore, this paper uses the companies listed in the Taiwan Stock Exchange and OTC stock exchange to investigate the relation between inside director’s dual role and firm’s future performance. The empirical results show that the inside director’s managerial role is significantly positive with firm’s future performance. This indicates that the greater the deviation extent of controlling rights and cash flow rights, the higher will be the shareholding ratio of inside directors; and the higher the salary of inside directors in managerial role, the better will be the firm performance. However, the inside director’s director role is no significantly positive with firm’s future performance. In addition, the result of using non-electronics industry as the sample is consistent with that of using all observations. To sum up, the results of this study can complement the existing literature and provide implications for companies in Taiwan.