The performance-governance relationship: the effects of Cadbury compliance on UK quoted companies.

Weir, Charlie; Laing, David

Abstract

This paper investigates the extent to which recommendations made by the Cadbury Committee have affected UK company performance. The Committee recommended that certain internal monitoring mechanisms should be adopted by quoted firms because they were more effective than others as a means of promoting shareholder interests. The mechanisms analysed are duality, the number of outside directors on the board and the presence of a remuneration committee. We analyse the relationship between governance structures and performance for two years, 1992 and 1995. Using samples of 200 companies for each of the years, we find that the proportion of firms adopting the governance structures recommended by Cadbury has increased. However there is mixed evidence that the structures are associated with better performance. Depending on the choice of dependent variable, the presence of a remuneration committee has a positive effect on performance and outside director representation has a negative effect. However, there is evidence of a simultaneous relationship between outside director representation and performance, a result consistent with additional outside directors being appointed after a period of poor performance. Complete compliance with the model of governance proposed by the Cadbury Committee does not, however, appear to be associated with performance which is better than that achieved by either partial or non compliance. © 2001 Kluwer Academic Publishers.

Citation

WEIR, C. and LAING, D. 2000. The performance-governance relationship: the effects of Cadbury compliance on UK quoted companies. Journal of management and governance [online], 4(4), pages 265-281. Available from: https://doi.org/10.1023/A:1009950903720

• Journal Article Type: Article
• Acceptance Date: Dec 1, 2000
• Online Publication Date: Dec 1, 2000
• Publication Date: Dec 1, 2000
• Deposit Date: Oct 17, 2016
• Publicly Available Date: Oct 17, 2016
• Journal: Journal of management and governance
• Print ISSN: 1385-3457
• Electronic ISSN: 1572-963X
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 4
• Issue: 4
• Pages: 265-281
• DOI: https://doi.org/10.1023/A%3A1009950903720
• Keywords: Board structure; Company performance; Governance structures; Remuneration committees
• Public URL: http://hdl.handle.net/10059/1901
• Contract Date: Oct 17, 2016