More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation

Akbar, Saeed ORCID: 0000-0002-1011-9799, Poletti-Hughes, Jannine ORCID: 0000-0001-5959-2141, El-Faitouri, Ramadan and Shah, Syed Zulfiqar Ali (2016) More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation. RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE, 38 (C). pp. 417-429.

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Official URL: http://dx.doi.org/10.1016/j.ribaf.2016.03.009

Abstract

This study examines the relationship between corporate governance compliance and firm performance in the UK. We develop a Governance Index and investigate its impact on corporate performance after controlling for potential endogeneity through the use of a more robust methodology, Generalized Method of Moments (GMM) Estimation. Our evidence is based on a sample of 435 non-financial publicly listed firms over the period 1999-2009. In contrast to earlier findings in the UK literature, our results suggest that compliance with corporate governance regulations is not a determinant of corporate performance in the UK. We argue that results from prior studies showing a positive impact of corporate governance on firms' performance may be biased as they fail to control for potential endogeneity. There may be a possibility of reverse causality in the results of prior studies due to which changes in the internal characteristics of firms may be responsible for the corporate governance compliance and performance relationship. Our findings are based on GMM, which controls for the effects of unobservable heterogeneity, simultaneity and dynamic endogeneity and thus present more robust conclusions as compared to the findings of previously published studies in this area.

Item Type:	Article
Additional Information:	## TULIP Type: Articles/Papers (Journal) ##
Uncontrolled Keywords:	Corporate governance, Governance index, Firm performance, Endogeneity, GMM
Depositing User:	Symplectic Admin
Date Deposited:	11 Apr 2016 14:48
Last Modified:	16 Dec 2022 05:25
DOI:	10.1016/j.ribaf.2016.03.009
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3000278