1. ^aDepartment of Risk Management and Insurance, National Chengchi University, Taipei, Taiwan. E-mails: jenwang@nccu.edu.tw, vjeng@nccu.edu.tw
2. ^bRisk Management and Insurance Department, Shih Chien University, Taipei, Taiwan. E-mail: jlpeng@mail.usc.edu.tw

^*The authors gratefully acknowledge the helpful comments of the editor, referees, and seminar participants at the 2004 ARIA meeting and APRIA conference.

Abstract

The corporate governance system of the insurance industry in Taiwan, which holds board members fully responsible for cases of bankruptcy, offers an interesting environment in which to explore its unique regulatory impact on insurers' efficiency. Using a unique panel data from Taiwan, this paper investigates whether corporate governance variables – including insider ownership, voting rights, cash-flow rights, and board composition – influence the efficiency performance of insurance companies. The analysis suggests that a high concentration of voting rights and cash-flow rights in controlling shareholders' ownership has prevailed in Taiwan's insurance industry. Our overall evidence shows that corporate governance plays an important role in influencing efficiency for property-liability insurers in Taiwan. Specifically, insider ownership, cash-flow rights, and the presence of outside directors have positive impacts, whereas concentrated ownership, deviation between voting rights and cash-flow rights, board size, and the presence of CEO duality have negative impacts on insurers' efficiency.