Board governance and corporate performance
Journal of Business Finance and Accounting
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 as in many countries around the world.
This research has been supported by funding from the Economic and Social Research Council (grant no. RES-061-25-0416).
This is the author accepted manuscript. The final version is available from Wiley via the DOI in this record.
Published online 18 August 2017