China's SMIC and Taiwan's TSMC are caught on opposite sides of the "Global Chip War." TSMC, despite having extensive commercial ties and fabs in the Mainland, is a beneficiary of U.S. efforts to stifle competition from Mainland competitors like SMIC. Geopolitical considerations, therefore, are increasingly influencing TSMC’s business decisions, as shown by TSMC’s construction of fabs in Japan and the United States despite founder Morris Chang’s longstanding opposition to overseas fabs due to their high costs. SMIC, meanwhile, is the Mainland’s best hope for creating a “red chip supply chain” and achieving 70% semiconductor self-sufficiency via domestic suppliers, which has taken on even more importance due to U.S. sanctions on advanced chips for AI model development. This article analyzes SMIC founder Richard Chang’s dream of building a red chip giant on the Mainland that can rival or even replace TSMC, which will directly conflict with Chang's former co-worker and fellow Taiwanese Morris Chang’s dream of solidifying TSMC and Taiwan’s position as the irreplaceable center of the semiconductor industry well into the 21st century.

This paper examines the effect of political favoritism on economic inequality in the short run and political polarization in the long run. We exploit the sudden death of an authoritarian leader – President Chiang Ching-Kuo of Taiwan – in 1988 to generate plausibly exogenous variation in partiality. We find that Chiang’s nationalist regime conducted political favoritism broadly toward political immigrants via cronyism (allocating public sector positions) and also differentially toward specific subgroups of political immigrants via wage discrimination (offering higher wages to these subgroups within the public sector). Favoritism led to a 7.2 percent immigrant wage premium, which accounted for nearly three quarters of the immigrant-native wage gap at the time. This in turn propelled overall income inequality by 4.5 percent. Moreover, political favoritism breeds political polarization in the long run by pulling apart the political views of immigrants and natives. Compared with natives, immigrants who were exposed to favoritism tend to adopt political positions that are aligned with the nationalist party today: they are more likely to support unification with China, and are more inclined to trust the mainland Chinese government and its citizens. Exposed immigrant (native) swing voters are also more (less) likely to vote for the nationalist party today.

This paper studies the presence of informed trading in Taiwan stock index options (TXO) and analyzes the informational role of foreign institutions in incorporating information into Taiwan stock index futures (TX). We have found that only the option-induced part (OOI) of the total TX order imbalance can predict future TX prices, and the OOI calculated from open-buy TXO, defined by Ni et al. (2008), provides incremental predictability. This finding shows that the price predictability stems from the information flow resulting from option transactions rather than from liquidity pressure. We conclude further that option transactions from foreign institutions provide the most significant predictability, out-of-the-money option transactions in particular. These empirical results show that option transactions conducted by foreign institutions have played the primary role in conveying the information inherent in the TXO market to the TX market, foreign institutions being delta-informed traders. Retail investors, the major players in both the TXO and TX markets, have done almost nothing of significance with regard to TXO information transmission into the TX market, with the exception of some near-the-money and out-of-the-money options.

Since September 1, 2014, the renminbi (RMB) offshore market in Taiwan has been started on according a cross-strait MOU. A completed RMB market in the Chinese Economic Area therefore has been established. Due to political and economic disruptions, such as the aftermath of the global tsunami, mainland China’s stock market crash and RMB exchange rate reform in 2015, as well as failure of the Service Trade Agreement between Taiwan and mainland China in 2016, the arbitrage opportunities among the three RMB markets can be explored. This paper evaluates the convergence and divergence of RMB market returns by the sigma-convergence (or log t) test, which provides a more precise indication for market return convergence than does the traditional unit root test. Policy implications for the RMB arbitrage are also provided.

The deviation of control right and cash flow right is a common problem of corporate governance in East Asian companies.With Taiwan's listed companies as samples, this paper discusses whether the degree of deviation of control right and cash flow right will affect the company’s earnings distribution policy. The results reveal that, regardless of using stock right or the number of directors to measure the control right, companies of higher degree of deviation of control right and cash flow right have higher proportions of employee bonuses against the shareholder dividends, In this case, the company is more biased in the care of the employees at the expense of the minority shareholders. The company is especially likely to exploit the minority shareholders by controlling the board of directors and paying cash dividends to employees. As investors believe that the controlling shareholders of companies with high degree deviation of control right and cash flow right, and high proportion of employee bonuses are intended to exploit the minority shareholders, such companies have significantly lower declared earnings distribution remuneration compared with companies with low degree of deviation and low employee bonuses.

Existing research does not find significant momentum profits in many emerging markets including China. We propose an alternative momentum strategy which groups stocks into return intervals rather than percentiles. We apply the method to the China A-share market and find economically significant momentum profits in weekly returns, but not in monthly returns. The weekly momentum lasts for about 1 year. More than half of the profit is realized in the first 3 weeks. We apply the method to other Asian equity markets and find significant weekly momentum in Hong Kong, Taiwan, Korea, Thailand, and Indonesia. These findings suggest that momentum may exist in different formats in different markets. Existence of momentum in a closed equity market like China supports momentum is pervasive in short-term stock returns.

This paper examines whether there is evidence of spillovers of volatility from the Chinese stock market to its neighbours and trading partners, including Australia, Hong Kong, Singapore, Japan and USA. China's increasing integration into the global market may have important consequences for investors in related markets. In order to capture these potential eects, we explore these issues using an Autoregressive Moving Average (ARMA) return equation. A univariate GARCH model is then adopted to test for the persistence of volatility in stock market returns, as represented by stock market indices. Finally, univariate GARCH, multivariate VARMA-GARCH, and multivariate VARMA-AGARCH models are used to test for constant conditional correlations and volatility spillover eects across these markets. Each model is used to calculate the conditional volatility between both the Shenzhen and Shanghai Chinese markets and several other markets around the Pacic Basin Area, including Australia, Hong Kong, Japan, Taiwan and Singapore, during four distinct periods, beginning 27 August 1991 and ending 17 November 2010. The empirical results show some evidence of volatility spillovers across these markets in the pre-GFC periods, but there is little evidence of spillover eects from China to related markets during the GFC. This is presumably because the GFC was initially a US phenomenon, before spreading to developed markets around the globe, so that it was not a Chinese phenomenon.

Based on a sample of financial holding companies listed on the Taiwan Stock Exchange, we examine the impact of media coverage of corporate social performance on corporate financial performance. Our findings are as follows. First, information about a firm’s social actions provided by the media is more relevant than provided by the financial holding company (FHC) itself, and the quantity of news articles about positive social activities of FHCs is positively correlated with financial performance; however, strikingly, that of news articles about FHCs’ negative social activities is also positively correlated with financial performance. In addition, we find that news articles about FHCs’ positive social activities for shareholders will trigger a positive evaluation by shareholders; however, rather interestingly, news articles about FHCs’ positive (negative) social activities for employees will trigger a negative (positive) evaluation by shareholders. But if the news articles about FHCs’ positive social activities for employees are initiated by the media, rather than by the company itself, they will trigger a positive evaluation by shareholders. Therefore, the evidence suggests that “doing good” can be expected to be “doing well” if the positive CSP information is provided by the media, rather than by the company itself.

This paper examines the relationship between private benefits and the discount of private equity offerings. Measuring private benefits in terms of both control rights and cash flow, we find that private benefits are primarily attributed to control right rather than ownership. By using a measure, the Banzhaf power index, that could better reflects the largest shareholder’s relative influence over the firm. We find that the largest shareholder’s control power decreases, even though her ownership increases after private placement. It indicates that the largest shareholder is willing to give up some control power in private placement. In addition, we find that motivation and the type of investors in private placements significantly influences price discount.

The issues concerning the governance mechanism of board independence and its determinants remain controversial in the field of corporate finance. Particularly, the association between the properties of family power and board independence is yet comprehensively discussed and is crucial important for the financial market in Europe and Asia. We set out in our study to identify the determinants of board independence with the sample of listed firms in Taiwan from 2002 to 2006 based on the notions that independent boards play an important role to enhance corporate governance mechanism. The argument that the higher involvement of family power in the board room is harmful to the board independence is expected. The evidence shows that firms with larger size and greater opportunities of managers to consume private benefits tend to hire more independent directors. Besides, higher growth opportunities, as well as greater outsider influence provide the same positive effect on appointing independent directors. Regarding to the most important evidence, firms with greater proportion of family members on the directorship reduce the tendency to appoint more independent directors; moreover, the higher percentage of shares owned by family members provides the positive effect on board independence. However, firm age is found to have a contradictory effect to that reported in the prior studies and firms which are more seasoned do not necessarily tend to hire more independent directors. Furthermore, we also compare board structures across different firm sizes and find that board composition in small and large firms is extremely divergent. We tend to contribute to the literatures with the evidence that firms with greater influence of power of family directorship on the board meeting are burdened with severe problem of less independence of the board.