Governance structures, size and corporate performance in UK firms

David Laing · Charlie Weir

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Corporate Finance and Governance Corporate Governance and Law Corporate Governance and Financial Management

Abstract

Analyses the extent of Cadbury compliance and its impact on corporate performance in the UK. Comparing 1992 and 1995, we find that UK public companies have, in general, complied with the Cadbury Committee’s Code of Best Practice and have adopted the recommended governance structures. However, compliance is more common among larger firms. Thus we find that duality is less common, firms tend to have more than three non‐executive directors and that there has been an almost universal adoption of board subcommittees such as the remuneration and audit committees. However, little evidence is found to suggest either that the board characteristics recommended by Cadbury lead to improved performance or that moving towards them improves performance. The only governance mechanism which does positively affect performance is the presence of remuneration and audit committees.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1996Higher market valuation of companies with a small board of directors 1991Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns 1996Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders 1998Meta-analytic reviews of board composition, leadership structure, and financial performance 1998Firm Performance and Board Committee Structure 1990The Composition of Boards of Directors and Strategic Control: Effects on Corporate Strategy 1992BOARD COMPOSITION FROM A STRATEGIC CONTINGENCY PERSPECTIVE

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