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This article examines the effects of ultimate controlling shareholders� ownership and board involvement on market liquidity and volatility using data from the Taiwan's market. We find that when a firm's ultimate controlling shareholder holds more control rights and is more involved on the board, and when there is a larger divergence between ultimate control and ownership as well as a larger divergence between controlling shareholders� cash-flow rights and their board representation, the governance function would be less effective, leading to lower stock liquidity and higher idiosyncratic volatility. We also find that firms controlled by business groups have poor performance of the two market metrics. Furthermore, outside independent directors do not have significant effects on market liquidity and volatility, probably due to too small representation on the board to have effective monitoring.
