Article2005

Internal corporate governance mechanisms and corporate performance: evidence for UK firms

61 citations0/0 files storedApplied Financial Economics Letters

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

This study investigates the relationship between internal corporate governance mechanisms and corporate performance for a large sample of UK firms. The aim is to extend the existing literature on firm performance by empirically investigating the role of debt-maturity structure of firms and managerial compensation in affecting corporate performance. Also, the study attempts to provide new insights on the subject by considering potential interaction effects between managerial ownership and other governance mechanisms available to firms. The results support the existence of a non-linear impact of both managerial ownership and managerial compensation on company performance. Debt-maturity structure is also found to be significantly related to performance. Finally, there is strong evidence that managerial ownership and managerial compensation work as substitute mechanisms in mitigating agency problems and, therefore, generating good performance.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1977Determinants of corporate borrowing 1986Large Shareholders and Corporate Control 1988Management ownership and market valuation 1990Additional evidence on equity ownership and corporate value 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1991Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt

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