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Whether the risk factors or firm characteristics cause the value premium of stocks still needs further investigation. This paper shows that the factor‐based models are significant but not sufficient for the stock returns in Taiwan. Size or book‐to‐market ratio alone cannot influence the stock returns under a factor‐based model. However, size along with book‐to‐market is significant under a factor‐based model. Furthermore, the risk characteristics are more influential than the factor load in stock return behavior. We conclude that employing only a factor‐based model or only risk characteristics will not consider some important content in stock returns.

We would like to thank C. Y. Chen, Wenchih Lee, two anonymous referees and the seminar participants at the 2000 FMA annual meeting for their helpful comments and encouragement. All of the remaining errors are our responsibility.

The purpose of this paper is to examine the long‐run performance of initial public offerings (IPOs) in Taiwan with a five‐factor model on a calendar time basis.

Besides the Fama‐French three factors, the paper also incorporates leverage and liquidity into the factor model to measure IPO five‐year performance. The sample consists of 261 IPOs issued in Taiwan over‐the‐counter during 1991 and 2002. The actual data cover the period from January 1991 to December 2007.

Contrary to findings of previous studies on US IPO markets, the paper finds that Taiwan IPOs experience better long‐run performance than the market even after adjusting for the common factors in the capital markets.

This paper argues that survival rate of Taiwan IPOs would be the reason why Taiwan IPOs do not underperform in the long run.

Conventional studies discuss the effect of managerial ownership on firm performance and have conflicting findings. This paper seeks to find divergent mutual effects existing between managerial ownership and firm performance.

The three‐stage‐least squares method and simultaneous equation model is adopted to obtain more efficient coefficient estimation. Both firm‐year observations and company mean variables are used to capture the structural relation and mutual effects between ownership structure and firm performance.

This paper finds divergent mutual effects existing. In a diffused ownership structure, better firm performance may induce management to hold more stockholding. Management with mid‐range of stockholdings has a positive effect on firm performance but not vice versa. For highly concentrated ownership structure, a negative mutual effect exists.

These findings provide the investment purpose as an alternative explanation for insiders' stockholding that agrees with investors' risk aversion attitude in practice. For highly concentrated ownership, possible management entrenchment behavior resulting from dominant control power should be carefully considered and monitored to protect minority shareholders.

This paper provides new evidence that complicated mutual effects may exist between managerial ownership and firm performance. It offers insights for both investors and researchers in corporate governance.