This dissertation consists of three essays in corporate governance. The first essay, titled ¡§Control or Invest: Complex Interests of Managerial Stockholdings¡¨ examines the structural relation between managerial ownership and firm performance. By using simultaneous equation models and considering the complex interests of management, our results show that complicated mutual effects exist between managerial ownership and firm performance. In diffused ownership structure (0-13%), better firm performance may induce management to hold more stockholding, indicating possible investment purpose that is not addressed in previous studies. Management with mid-range of stockholdings (13%-50%), have positive effect on firm performance but not vice versa, which agrees with the ¡§convergence-of-interest hypothesis¡¨. For highly concentrated ownership structure (>50%), negative mutual effect exists, which agrees with the ¡§entrenchment hypothesis¡¨, giving notice to protect minority shareholders. The second essay, titled ¡§The Discrepancy of R&D Expenditure, Ownership Structure and Performance between Electronic and Non-electronic Industries¡¨ addresses on the mutual effects among R&D expenditure, ownership structure and firm performance in electronic industry. The characteristics of high research expenditure, high performance, and stock-based compensation plan of electronic industry may exaggerate the mutual effects between these three factors than companies in non-electronic industry. The empirical evidence first shows that better firm performance will result in higher managerial equity in both electronic and non-electronic industries. Another finding is that electronic industry has higher and more stable research expenditure, no matter firm¡¦s performance; while non-electronic industry spends more in research only when the firm is doing well. The third essay, ¡§The Adjustment and Determination of Ownership Change¡¨, is used to examine the equilibrium hypothesis regarding managerial ownership variation. The equilibrium hypothesis assumes that managers will continuously re-optimize their ownership to maximize firm¡¦s value. In this essay, instead of studying the cross-sectional relationship between managerial ownership and firm performance, we use a dynamic setting to examine how managers adjust their ownership over time and what factors will determine the within firm variation. It is shown that there is small within firm variation in managerial ownership with strong mean-reversion adjustment the entire sample. The results also show that firm characteristics like debt ratio, R&D expenditure and operating income do not relate significantly to within firm variation, but firm performance and institutional parameters like the reselection of board members, stock turnover and ownership level do. This thesis contributes to provide investment purpose as an alternative explanation for insiders¡¦ stockholding, in addition to the expropriation activities that is major concern in prior studies. The change analysis further provides more understanding of within firm variation vertically that is still vague in the literature (HHP, 1999). These new findings add knowledge to managerial ownership in emerging market like Taiwan. The managerial implication is that investors may not fully depend on manager¡¦s self-discipline to solve agency problem. Outside supervision, including independent board member and supervisor, institutional investors and corporate governance evaluation, could be emphasized to reinforce corporate governance.

This thesis contains empirical studies of portfolio choice and asset prices. The first two chapters deal with incorporating labor supply into models traditionally only focusing on consumption. Can the risk premium on stocks be better understood when taking labor supply into account? This is the topic of the first chapter. Do possibilities of varying labor supply, and thus hedging stock market risk, help explain the stock ownership patterns of households? This question is what the second chapter tries to answer. If labor income moves with the stock market, an attempt should be made to hedge this with a lower share of stocks in the portfolio and, but do households act according to this rule? This is what the third chapter investigates. Chapter one, Labor Supply Flexibility and Portfolio Choice: Evidence from the PSID, examines the relationship between labor supply flexibility and portfolio choice. Theoretical articles have shown that, ceteris paribus, the optimal portfolio share of risky assets (stocks) increases with labor supply flexibility, due to increased possibilities of hedging financial risk by adjusting the labor supply. Using PSID household data, this hypothesis is tested using a direct measure of labor supply flexibility from survey questions. The results indicate that the total portfolio share is increased by labor supply flexibility. When separated, most of this effect seems to come from the increased probability of stock ownership due to flexible labor, rather than an increased portfolio share among stockholders. Chapter two, Can Leisure Explain the Equity Premium Puzzle? An Empirical Investigation, investigates the asset pricing properties of non-separable utility functions with consumption and leisure. The parameter restrictions needed to match the historical equity premium are explored using US data on consumption, hours and returns. Empirically, it is shown that to match the equity premium with a low level of risk aversion, consumption and leisure need to be strong complements, i.e. have a very low substitution elasticity. Chapter three, Income Risk and Stockholdings: Evidence from Swedish Microdata, examines the relationship between income risk and portfolio choice. It empirically investigates whether the stock market risk (the covariation with the stock market) in labor income is reflected by an offsetting lower share of stocks in financial portfolios, an effect that has been shown to exist in theoretical articles. Swedish microdata from HINK on households’ income and wealth are used for this purpose. In repeated cross-sections, households are divided into "portfolio cohorts" corresponding to percentiles of the share of stocks in financial assets. Income risk, i.e. the regression beta of (log) income growth on aggregate stock returns, is compared for the different groups. As predicted by theory, the results provide some support for a negative relationship between income risk and the share of stocks. / Diss. Stockholm : Handelshögsk., 2004

This paper discuss the issue of how corporate governance variables affect the cognitions of groups of investors to lead they separate their investment strategies in 1997-2011 sample period, the results indicate that firms with higher management stockholdings, lower blockholders’ shareholdings, smaller board size, more outside independent supervisors, CEO duality, and one of ultimate controllers served as chairman would be appealing to individual investors; the robust test from 2007 to 2011 only positively affects the investment strategies for foreign institutional investors. Moreover, we explore that lower blockholders’ stockings and smaller board size are favorable characteristics for investors to increase firms’ trading volumes but also the trading volatilities. Finally, we compute the corporate governance score for every sample company called CG-Index, and discover a perfect corporate governance mechanism would inspire investing motivations of domestic individuals and foreign institutions, after considering the information disclosure ranking in 5 years sample period, the stockholding of whole individual investors is indicated positive related to the corporate governance degree.

We investigate the trading strategy of the insider and propose two models to describe the insider’s behavior. Comparing with previous studies, we add insider stockholdings as a variable to the extension of information asymmetry. In our setting with information asymmetry between outside investors and the insiders, the insiders could obtain more inside information via increasing their stockholdings. When the insider with large stockholdings purchases more shares, outside investors would take this as a positive signal that the insiders regard the performance of the company in the future as optimistic. On the other hand, when the insider stockholdings is large, outsiders would worry that inside trading may become more. The insider would deliberate upon the quantities traded at period one and two, which have different impact in stock price. If the insider buys more stocks at period one, he could improve his information precision. However, if the insider buys large stocks, the market makers would take into account the insider’s function of information precision and thus the insider may impact on the stock price. Therefore the insider would evaluate market makers’ pricing rule. Since increasing stockholdings enhances precision information, intuitively, earlier stage the insider submits a large order. Nonetheless, our study shows that when the insider stockholding is extremely large, then the increasing of information precision is limited because the information precision is increasing with insider stockholding at a decreasing rate. Besides, when the insider stockholdings is large enough at period one, he would place a small order at period two.