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Board governance and corporate performance

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  • Amama Shaukat
  • Grzegorz Trojanowski

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.

Suggested Citation

  • Amama Shaukat & Grzegorz Trojanowski, 2018. "Board governance and corporate performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(1-2), pages 184-208, January.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:1-2:p:184-208
    DOI: 10.1111/jbfa.12271
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    Citations

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    Cited by:

    1. Yun Liao, 2024. "Super-efficiency and Stock Market Valuation: Evidence from Listed Banks in China (2006 to 2023)," Papers 2407.14734, arXiv.org.
    2. Yanlin Li & Gary Gang Tian & Xin Wang, 2023. "Effects of appointing new independent directors who are professionally affiliated with their predecessors: Evidence from China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(1-2), pages 267-307, January.
    3. Pamela Brandes & Ravi Dharwadkar & Jonathan F. Ross & Linna Shi, 2022. "Time is of the Essence!: Retired Independent Directors’ Contributions to Board Effectiveness," Journal of Business Ethics, Springer, vol. 179(3), pages 767-793, September.
    4. David B. Bryan & Terry W. Mason, 2020. "Independent director reputation incentives, accruals quality and audit fees," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 982-1011, July.
    5. Liu, Yang Stephanie & Zhou, Xiaoyan & Yang, Jessica Hong & Hoepner, Andreas G.F. & Kakabadse, Nada, 2023. "Carbon emissions, carbon disclosure and organizational performance," International Review of Financial Analysis, Elsevier, vol. 90(C).
    6. Othar Kordsachia, 2021. "A risk management perspective on CSR and the marginal cost of debt: empirical evidence from Europe," Review of Managerial Science, Springer, vol. 15(6), pages 1611-1643, August.
    7. Anwer, Zaheer & Azmi, Wajahat & Mohamad, Shamsher, 2023. "Shariah screening and corporate governance: The case of constituent stocks of Dow Jones US Indices," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 976-1002.
    8. Adrian Doru Bigioi & Cristina Elena Bigioi, 2023. "Governance and Performance in Romanian Energy Companies," Energies, MDPI, vol. 16(13), pages 1-22, June.
    9. Hsu, Ching-Yu & Chen, Sheng-Syan & Huang, Chia-Wei, 2021. "Board independence and PIPE offerings," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 478-500.
    10. Peng Xu & Guiyu Bai, 2019. "Board Governance, Sustainable Innovation Capability and Corporate Expansion: Empirical Data from Private Listed Companies in China," Sustainability, MDPI, vol. 11(13), pages 1-17, June.
    11. Ha Thanh Nguyen & Balachandran Muniandy, 2021. "Gender, ethnicity and stock liquidity: evidence from South Africa," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2337-2377, April.
    12. Suman Paul Chowdhury & Riyashad Ahmed & Nitai Chandra Debnath & Nafisa Ali & Roni Bhowmik, 2024. "Corporate Governance and Capital Structure Decisions: Moderating Role of inside Ownership," Risks, MDPI, vol. 12(9), pages 1-22, September.
    13. Fareed, Zeeshan & Wang, Nianyong & Shahzad, Farrukh & Meran Shah, Syed Ghulam & Iqbal, Najaf & Zulfiqar, Bushra, 2022. "Does good board governance reduce idiosyncratic risk in emerging markets? Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 65(C).

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