Agency Theory, Executive Compensation and Firm Performance in Taiwan

This report examines the impact of executive compensation and agency theory on the financial performance of both family-owned and non-family-owned businesses in Taiwan, Singapore, and Hong Kong, with a specific focus on Quanta Computer. The study reviews relevant literature, including the conceptual framework of executive compensation and agency theory. The research methodology employs a descriptive research design and interpretivism philosophy to analyze financial data and assess the relationship between executive pay, agency principles, and company performance metrics such as revenue, net income, and key financial ratios across different business types. The report investigates how factors like strong principal-agent relationships, stock options, and bonus plans affect firm value and sustainability, addressing the applicability of agency theory in both family and non-family business contexts.

Agency Theory, Executive compensation and firms
performance of family-owned business in Taiwan

Table of Contents
AIM AND OBJECTIVE..................................................................................................................1
Aim..............................................................................................................................................1
Objectives....................................................................................................................................1
LITERATURE REVIEW................................................................................................................1
RESEARCH METHODOLOGY.....................................................................................................4
DATA COLLECTION AND ANALYSIS......................................................................................5
Gantt Chart..................................................................................................................................6
Ethical consideration...................................................................................................................7
DISCUSSION..................................................................................................................................8
Discussion...................................................................................................................................8
Limitation....................................................................................................................................9
CONCLUSION AND RECOMMENDATION...............................................................................9
Conclusion...................................................................................................................................9
Recommendation.......................................................................................................................10
REFERENCES..............................................................................................................................11

AIM AND OBJECTIVE
Aim
“To identify impact of executive compensation and principles of agency theory on financial
performance of family owned business and non family owned business of Taiwan, Singapore and
Hong Kong”.
A study on Quanta Computer.
Objectives
 To explain conceptual framework of executive compensation and principles of agency
theory.
 To determine significance of executive compensation and agency theory for the
development of family owned business Quanta Computer of Singapore.
 To identify impact of executive compensation and principles of agency theory on
performance of family owned business.
LITERATURE REVIEW
As per the view of Van Essen, Otten and Carberry, (2015) executive compensation is
considered as one of the important tool for the business that supports in enhancing the
confidence of shareholders and make them positive towards the brand. It is the term in which
companies provide financial payment and non monitory benefits to its executives for their
contribution in the organization. This executive compensation packages are such as attractive
salaries, shares, bonuses, retirement packages, executive perks etc. According to Cho, Huang and
Padmanabhan, (2014) agency theory is also known as principal-agency theory. Agents are the
persons those who work in the organization and principals are higher authorities those who make
decisions on behalf of employees. Agent has to carry the task for the well fare of the
organization.
Taiwan family and non family business
1

Illustration 1: Quanta Computer
Source: (Quanta Computer Inc 2382, 2017)
2

Illustration 2: Ratio analysis of Quanta Computer
Source: (Quanta Computer Inc 2382, 2017)
Above records show that Quanta Computer which is family owned business of Taiwan is
is growing. Gross profit of the firm in the year 2012 was 39206 and has raised by 37304 in the
year 2013. In the year 2016 it has reached to 46594. Net income of the organization is decreasing
continuously, in the year 2012 it was 23039 whereas in 2016 it was 15138. Current ratio was in
the year 2012 was 1.22 and in the year 2016 it was 1.25. Quick ratio of the company is almost
growing, in the year 2012 it was 0.95, in 2013 it was 1.03 and in the year 2016 it was 0.94. Net
margin percentage in decreasing because expenditure of the organization is very high.
3

Illustration 3: Ratio analysis of SAIC Motor Corp
Source: (SAIC Motor Corp Ltd, 2017)
4

SAIC Motor Corp is the non family owned business of Taiwan, it is performing well in the
market. Its revenues are increasing every year. In the year 2012 its sales revenue were 480980, in
2013 it raised and reached to 565807, in the year 2015 it reached to 670448 and in the year 2016
revenues were 756416. Operating expenditure of the entity is also increasing in 2012 it was
41076 whereas in 2016 it reached to 57765. Return on assets % was in the year 2012 was 6.53%
and in 2016 it was 6.43%. Current ration in the year 2012 was 1.21% and in the year 2013 it was
1.24, in 2015 it was 1.05 and in 2016 1.11. Quick ratio in 2012 was 0.71, in 2013 it was 0.76 but
till 2016 it reached to 0.60.
Hong Kong family and non family owned business
5

Illustration 4: Groupe Auchan financial performance
Source: (Groupe Auchan, 2017)
Family owned business of Hong Kong perform well. Over the past few decades these
firms are performing surprisingly. Approx 920 family owned firms of Hong Kong has grown
10% in its sales revenues. Hong Kong is ranked fifth across the world in family owned business.
Groupe Auchan is family owned business of Hong Kong which revenues has reached to
70908.30. Over the past few years 11.1% changes have been occurred in the business which has
increased its sales income. There have been profit of -25.2% over the past few years. NRG
Energy inc is the non family owned business of Hong Kong. Which is performing well its
growth ratio shows its high efficiency.
Illustration 5: Financial ratios of NRG Energy non family business of Hong Kong
Source: (NRG Energy Inc, 2017)
6

Illustration 6: Ratios of NRG
Source: (NRG Energy Inc, 2017)
Singapore Family and non family owned business
Family owned business of Singapore are growing well. MAN WAH HOLDINGS
LIMITED is the family-owned business operating in the Singapore. Revenues of the organization
in increasing rapidly, in the year 2012 revenue of the company was 4336353, whereas in the year
2013 it was 4876976, in 2014 this figures reached to 5991060, in 2015 it reached to 6554811 and
in 2016 the revenues of cited firm was 7321590. It shows that family owned business of
Singapore is growing well. Operating profit margin of the organization has reached to 6.2% to
18% from 2012 to 2016.
7

Illustration 7: Financial performance of MAN WAH HOLDINGS LIMITED
Source: (MAN WAH HOLDINGS LIMITED, 2017)
Wilmar International Ltd is non family owned business of Singapore. Revenues of the
organization is decreasing continuously. Current ration has decreased and reached to 1.26.
Financial leverage is increased over the year and it is reached to 2.57 in the year 2016.
8

Illustration 8: Financial performance of non family business Wilmar International Ltd of
Singapore
Source: (Wilmar International Ltd , 2017)
9

Illustration 9: Ratio analysis
Source: (Wilmar International Ltd , 2017)
Pepper and Gore, (2015) states that it is essential to have strong relationship between
agent and principal. Strong bonding can help in conducting the operations in smooth manner and
accomplishing goal of the company. In the family owned business of Singapore, generally there
is poor relationship between agent and principal, even higher authorities do not provide
necessary benefits to their employees or shareholders. That is the main reason that people do not
perform their duties well which creates negative situation for the family business. Principle earn
benefit from the agent work but do not circulate the benefit to all. It is the main reason which
causes conflict condition in the business unit and entity fail to meet with the demand of
consumers. It not only affects the brand image but also firm, fail to sustain in the market for
longer duration.
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