Corporate Governance, Voluntary Compliance, Corporate Performance and Executive Pay: Evidence from the UK

This thesis quantitatively examines the extent to which UK corporate governance (CG) reforms have been effective in constraining excessive executive pay (EP) and enhancing CG compliance and corporate performance/valuation for 100 UK non-financial listed companies over the period 2008-2013 (i.e., 600 observations). In particular, this study aims to: (i) examine compliance and disclosure levels of CG rules contained in the 2010 UK Combined Code; (ii) examine factors that determine compliance and disclosure levels of CG recommendations contained in the 2010 UK Combined Code; (iii) investigate CG’s influence, using both the composite-CG-index and the individual-CG-variable models, on corporate performance/valuation; (iv) analyse the interaction effect of ownership structure variables on the UK CG index (UKCGI)-Performance nexus; (v) examine the impact of firm-level CG quality on executive pay (EP), using both models; and (vi) investigate that the interaction effect of ownership structure variables on the UKCGI-EP relationship.
Firstly, this study employs one the most extensive hand-collected datasets on CG compliance and disclosure practices comprising 120 CG provisions extracted mainly from 2010 Combined Code to examine the level and the antecedents of CG compliance and disclosure. The results suggest that there is still substantial variation in CG practices among the UK firms. The study also finds that firm-level voluntary CG disclosure is significantly influenced by ownership structure and board characteristics.
Secondly, and with regard to the third and fourth objectives, the findings indicate that firm-level CG quality, proxied by the UKCGI, is positively linked with both Tobin’s Q (Q-ratio) and return on assets (ROA), but has no significant link with total shareholder return (SR). Additionally, the findings obtained from the individual-CG-variable model are mixed. For example, and briefly, board size and board independence are statistically significant and positively related to Q-ratio, whereas other variables are either insignificantly or natively related to Q-ratio. The findings also suggest that, ownership structure variables moderate the association among the UKCGI, Q-ratio and ROA, but have no moderating effect on the UKCGI-SR nexus.
Finally, and in terms of the final two objectives, the findings indicate that UKCGI is negatively related to executive pay (EP). Similarly, and using the individual-CG-variable model, the results are mixed. For example, and briefly, board size, board independence and board diversity are negatively related to EP, whilst other mechanisms are either insignificantly or positively related to EP. The findings also suggesting that ownership structure variables moderate the UKCGI-EP nexus.