Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies

Posted: 23 Oct 2001

See all articles by Charlie Weir

Charlie Weir

Robert Gordon University - Aberdeen Business School

David Laing

Robert Gordon University - Centre for the Enhancement of Learning and Teaching (CELT)

Phillip J. McKnight

University of St. Andrews - School of Management

Abstract

This paper analyses the relationship between internal and external corporate governance mechanisms and the performance of UK companies within the context of the Cadbury Committee's Code of Best Practice. The results show, first, that the market for corporate control is an effective governance mechanism that may be regarded as a substitute for the other mechanisms. Second, there is a weak relationship between the internal governance mechanisms and performance. Third, there is also little evidence that with firms in the top and bottom performance deciles have different internal governance characteristics. The results therefore raise questions about the efficacy of imposing prescriptive internal governance mechanisms on companies, particularly given that the market for corporate control has been shown to be an effective means of reducing agency costs.

Keywords: corporate governance, internal governance mechanisms, The Cadbury Report, external governance mechanisms, board independence

JEL Classification: G30, G32, G34, L21

Suggested Citation

Weir, Charles and Laing, David and McKnight, Phillip J., Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies. Journal of Business Finance and Accounting, 2002, Forthcoming. Available at SSRN: https://ssrn.com/abstract=285071

Charles Weir (Contact Author)

Robert Gordon University - Aberdeen Business School ( email )

Garthdee Road
RGU
Aberdeen AB10 7QE
United Kingdom
0044 1224 263800 (Phone)
0044 1224 263838 (Fax)

David Laing

Robert Gordon University - Centre for the Enhancement of Learning and Teaching (CELT) ( email )

Schoolhill
Aberdeen, Scotland AB10 1F
United Kingdom
0044 1224 262246 (Phone)
0044 1224 263344 (Fax)

Phillip J. McKnight

University of St. Andrews - School of Management ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

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