The Performance-Governance Relationship: The Effects of Cadbury Compliance on UK Quoted Companies

By C. Weir, D. Laing. 2000

189 citations recorded by the source corpus.

This paper investigates the extent to which recommendations madeby the Cadbury Committee have affected UK company performance.The Committee recommended that certain internal monitoringmechanisms should be adopted by quoted firms because they weremore effective than others as a means of promoting shareholderinterests. The mechanisms analysed are duality, the number ofoutside directors on the board and the presence of a remunerationcommittee. We analyse the relationship between governancestructures and performance for two years, 1992 and 1995. Usingsamples of 200 companies for each of the years, we find that theproportion of firms adopting the governance structuresrecommended by Cadbury has increased. However there is mixedevidence that the structures are associated with betterperformance. Depending on the choice of dependent variable, thepresence of a remuneration committee has a positive effect onperformance and outside director representation has a negativeeffect. However, there is evidence of a simultaneous relationshipbetween outside director representation and performance, a resultconsistent with additional outside directors being appointedafter a period of poor performance. Complete compliance with themodel of governance proposed by the Cadbury Committee does not,however, appear to be associated with performance which is betterthan that achieved by either partial or non compliance.

Subfields: Accounting

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Citations in the corpus

Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis (2009, background): “Weir and Laing (2000) found that 95% of quoted UK companies had a remuneration committee in 1995 and Weir et al. (2002) reported that 96% had an audit committee by 1996.”
Undervaluation, private information, agency costs and the decision to go private (2005, background): “In the UK audit and remuneration committees are present in around 95% of quoted companies (Weir and Laing, 2000; Dahya et al., 2002).”
Corporate Governance and Firm Performance: Evidence from the Insurance Sector of Ghana (2012, background): “105 Bhagat, S., & Black, B. (2002). The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27(2), 189-220 Bokpin, G. A., & Arko, A.C. (2009). Ownership structure, corporate governance and capital structure decisions of firms, empirical evidence fro”
East Meets West? Board Characteristics in an Emerging Market: Evidence from Turkish Banks (2008, background): “…Kiel and Nicholson (2003) find a positive and significant correlation between Tobin’s Q and duality in their correlation analysis, nevertheless, like Abdullah (2004) and Weir and Liang (2000), they did not observe any significant relationship between these variables in the regression analysis.”
More on the relationship between corporate governance and firm performance in the UK : evidence from the application of generalized method of moments estimation (2016, background): “By contrast, Weir and Laing (2000) and Weir, Laing and McKnight (2002) do not find a significant relationship between complete compliance with corporate governance as contained in the Cadbury Report and firms’ performance.”
Corporate‐Governance Ratings and Company Performance: A Cross‐European Study (2010, unknown): “This is consistent with prior research, such as Zattoni and Cuomo (2008). In line with the trend in the company ratings, also the country-level recommendations become more extensive over time.”