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The Performance-Governance Relationship: The Effects of Cadbury Compliance on UK Quoted Companies

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  • Charlie Weir

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  • David Laing
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    Abstract

    This paper investigates the extent to which recommendations madeby the Cadbury Committee have affected UK company performance.The Committee recommended that certain internal monitoringmechanisms should be adopted by quoted firms because they weremore effective than others as a means of promoting shareholderinterests. The mechanisms analysed are duality, the number ofoutside directors on the board and the presence of a remunerationcommittee. We analyse the relationship between governancestructures and performance for two years, 1992 and 1995. Usingsamples of 200 companies for each of the years, we find that theproportion of firms adopting the governance structuresrecommended by Cadbury has increased. However there is mixedevidence that the structures are associated with betterperformance. Depending on the choice of dependent variable, thepresence of a remuneration committee has a positive effect onperformance and outside director representation has a negativeeffect. However, there is evidence of a simultaneous relationshipbetween outside director representation and performance, a resultconsistent with additional outside directors being appointedafter a period of poor performance. Complete compliance with themodel of governance proposed by the Cadbury Committee does not,however, appear to be associated with performance which is betterthan that achieved by either partial or non compliance. Copyright Kluwer Academic Publishers 2000

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    File URL: http://hdl.handle.net/10.1023/A:1009950903720
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Management and Governance.

    Volume (Year): 4 (2000)
    Issue (Month): 4 (December)
    Pages: 265-281

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    Handle: RePEc:kap:jmgtgv:v:4:y:2000:i:4:p:265-281

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    Web page: http://www.springerlink.com/link.asp?id=102940

    Related research

    Keywords: board structure; company performance; governance structures; remuneration committees;

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    Cited by:
    1. Krishna Reddy & Stuart Locke & Frank Scrimgeour, 2010. "The efficacy of principle-based corporate governance practices and firm financial performance: An empirical investigation," International Journal of Managerial Finance, Emerald Group Publishing, vol. 6(3), pages 190-219, July.
    2. McKnight, Phillip J. & Weir, Charlie, 2009. "Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 139-158, May.
    3. Ntim, Collins G, 2012. "Director Shareownership and Corporate Performance in South Africa," MPRA Paper 45808, University Library of Munich, Germany.

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