Selected insights into corporate governance in FTSE tech mark companies (2003 - 2007)

• Main Author: Stewart, Iyala
• Published: London South Bank University 2011
• Subjects: 658.4
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.593646

Following recent high profile corporate scandals such as Satyam, Northern Rock and Enron, there are manifest and growing global needs to enquire into several corporate governance characteristics, features, and mechanisms. This is true globally and perhaps even more so in the U.K. Accordingly, this research first, historically traces the formal development of corporate governance in the U.K. (Chapter 1) and while discussing corporate scandals mainly in the U.K. identifies governance features that likely contributed to such scandals. Fundamentally, the empirical part of this research is underpinned by Agency Theory; and so, an examination of that theory and related theories is undertaken. An index (CG Index) of firms’ compliance with the provisions of the U.K. Corporate Governance Combined Codes is derived and evaluated in Chapters 4-7. A panel dataset constructed from data of 69 Technology firms covering 2003 – 2007, is applied in Chapters 4-6. The multiple regressions technique is used in Chapters 4-6 to empirically explore the relationships between the derived Corporate Governance index and firms’ characteristics such as performance, ownership, leverage and capital investments. Results show that there is a significant positive association between CG index and financial performance (Chapter 4). Also there are positive but not significant associations between CG Index and institutional ownership and leverage. Equally, corporate governance appears to constrain managerial incentives to undertake unworthy shareholder wealth minimising projects. The research takes into account the endogeneity of the relationships between corporate governance and factors; and identifies similar positive associations between performance, leverage, capital investments and CG Index. Evidence from Chapter 5 suggests that institutional equity investors are willing to move capital to older firms and companies with more active boards. Further, this chapter provides evidence which suggests that high board independence (higher proportions of non-executive directors) discourages high managerial holdings, but marginally boosts institutional ownership; however, managerial ownership and board structures in all estimations are negative implying that managers have less incentive to improve good governance systems. The probit technique employed in Chapter 6 reveals a strong association between Corporate Governance and CEO Turnover whereas firm performance tends not to significantly influence CEO departure. To date, no study appears to have empirically compared the corporate governance of acquiring firms vis-à-vis nonacquiring firms in the U.K.; hence with a dataset of 30 (15 high-takeover and 15 partially selected zerotakeover) firms, Chapter 7 of the research provides insights into this phenomenon. Evidence in this chapter indicates that as the volume of takeovers increase, ownership falls; and older firms tend to have higher corporate takeover deals. Accordingly, policy makers should consider being proactive, pay good regard to overall corporate governance and in particular enable shareholders to exercise high board independence as a mechanism to constrain managerial opportunistic behaviour. Within potential target firms, policy makers should be alert to older potential acquirers with good financial performance and high institutional equity holding - especially those within the same industry. Keywords: Corporate Governance (CG Index); Firm Performance; Ownership; Capital Investment; Leverage; Firm Value; Board Activeness; Board Size; Non-executive Directors; CEO Turnover, Takeovers; Agency Theory.