Board Governance and Corporate Performance

Journal of Business Finance & Accounting (Vol. 45, 1-2, Forthcoming)

48 Pages Posted: 27 Nov 2017 Last revised: 30 Nov 2017

See all articles by Amama Shaukat

Amama Shaukat

Brunel Business School, Brunel University, London

Grzegorz Trojanowski

University of Exeter

Multiple version iconThere are 2 versions of this paper

Date Written: August 15, 2017

Abstract

We examine the link between the monitoring capacity of the board and corporate performance of UK listed firms. We also investigate how firms use the flexibility offered by the voluntary governance regime to make governance choices. We find a strong positive association between the board governance index we construct and firm operating performance. Our results imply that adherence to the board-related recommendations of the UK Corporate Governance Code strengthens the board's monitoring capacity, potentially helping mitigate agency problems, but that investors do not value it correspondingly. Moreover, in contrast to prior UK findings suggesting efficient adoption of Code recommendations, we find that firms at times use the Code flexibility opportunistically, aiming to decrease the monitoring capacity of the board, which is followed by subsequent underperformance. This finding questions the effectiveness of the voluntary approach to governance regulation followed in the UK and in many countries around the world.

Keywords: agency theory, board committees, board independence, board of directors, comply or explain, corporate governance, corporate governance codes, firm performance, managerial opportunism, non-executive directors

JEL Classification: G30, G34, G38

Suggested Citation

Shaukat, Amama and Trojanowski, Grzegorz, Board Governance and Corporate Performance (August 15, 2017). Journal of Business Finance & Accounting (Vol. 45, 1-2, Forthcoming). Available at SSRN: https://ssrn.com/abstract=3074861

Amama Shaukat

Brunel Business School, Brunel University, London ( email )

Kingston Lane
Eastern Gateway Building
Uxbridge, Middlesex UB8 3PH
United Kingdom

HOME PAGE: http://www.brunel.ac.uk/people/amama-shaukat

Grzegorz Trojanowski (Contact Author)

University of Exeter ( email )

Xfi Building
Rennes Drive
Exeter, Devon EX4 4ST
United Kingdom

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