Corporate governance : a study of the corporate governance of quoted firms in the United Kingdom
The purpose of this study is to examine the corporate governance, of firms quoted on the stock market. An important contribution of the thesis is the derivation of the conceptual framework for analysing corporate governance which places conduct at the centre of the understanding of corporate governance. I propose a conceptual framework by extending the concept of incomplete contracts to include expost observability/verifiability of the contracts between shareholders and managers. Strategic co-operation between shareholders and managers is only feasible in the procedural justice mode. Deliberation between the contracting parties is identified as the centre piece of corporate governance. Managerial decision behaviour is shown to be endogenous to the corporate governance framework. A number of empirical issues emerge from the conceptual framework. We examine two of these using panel data techniques and data on 218 manufacturing firms and the complete list of 44 authorised financial institutions observed over a six year period, 1987-88 to 1994-95. I examine whether there is a case for deliberation in a corporate governance framework given that the procedural justice mode is the only basis of strategic co-operation. The second issue that was evaluated relates to the implications of the adoption of a dominant strategy by shareholders given that the UK corporate governance framework places a primary reliance on the market for corporate control. My evidence shows that firm-specific factors are important in control changes as measured by top management turnover. Thus the crucial recommendation of the procedural justice based corporate governance framework, that deliberation will have to be an integral component of the corporate governance framework, has been validated by the empirical analysis. In the absence of strategic co-operation based on procedural justice mode the conceptual framework proposed envisages the adoption of dominant strategy by shareholders. The consequence of this will be an emphasis on power relations in the top management team in a bid to minimise their human capital risk. There will be ambiguity in the control changes as reflected by top management turnover. I also find evidence that demonstrates the role of power in control changes. Control changes as reflected by turnover of all directors and executive directors, in all the estimates, are found to be consistently related to CEO changes. Financial performance indicators are consistently inversely related to directors turnover in the manufacturing sector but their impact on directors as reflected by elasticity measures are very low. The effect of financial performance on the likelihood of CEO change is not sgnificant for all the measures used in the study. Thus the evidence shows that there is little accountability in the processes of corporate governance as reflected in the top management turnover. The conceptual framework proposed is not in conflict with the principal and agents framework. The empirical results have also been used to evaluate the significance of individual variables and compare and contrast with the findings of the existing literature on top management turnover. Analysis of the regulatory arrangement for authorised financial institutions has shown that the central banks act as the centrepiece of the control structure in the financial services sector. The role of the central banks in terms of corporate governance, however, has been to replace the conventional governance goal of shareholder wealth maximisation with concerns for depositors security and the stability of the financial system. There are very few studies on the functioning of corporate governance mechanisms in banks. Researchers are also increasingly interested in how corporate governance mechanisms in general, vary in different legal and regulatory environments. The study of the manufacturing and financial services sectors of the same country provides valuable evidence for this comparison of corporate governance under differing legal and regulatory arrangements.