In Letter but not in Spirit: An Analysis of Corporate Governance in the UK
ESSEC Business School - Finance Department
American University - Department of Finance and Real Estate
We examine the effectiveness of the "comply or explain" approach to corporate governance in the UK. Using a unique database of 245 non-financial companies for the period 1998-2004, we perform a detailed analysis of both the degree of compliance with the provisions of the corporate governance code of best practice (Combined Code), and the explanations given in case of non-compliance. We rank the quality of explanations based on their information content. We find an increasing trend of compliance with the provisions of the Combined Code, but also a frequent use of standard and uninformative explanations when departing from best practice, which highlights a common conformity with the letter but not the spirit of the Code.
Number of Pages in PDF File: 73
Keywords: Corporate Governance, Comply or Explain, Combined Code
JEL Classification: G30, G34
Date posted: October 13, 2005