Abstract
AbstractThis paper investigates whether shareholder value is affected by non‐compliance with the prescriptions of a principle‐based ‘comply or explain’ system of corporate governance in the context of the global financial crisis of 2007–2009. Using System Generalized Method of Moments estimates to control for different types of endogeneity, the main findings of this paper suggest that non‐compliance with the UK Corporate Governance Code adversely affects shareholder value. Furthermore, ex‐post estimates reveal that compliance with certain corporate governance mechanisms is more beneficial than others. With regard to this, compliance with provisions related to board independence is more important than complying with performance‐related pay requirements of the code. These findings have implications for policy makers and financial institutions regarding the usefulness of compliance with a prescribed code of corporate governance, specifically during periods of financial distress.
Highlights
Financial crises have existed throughout history, from the Tulip Mania in the 1600s to the recent European debt crisis
Given the importance of financial firms, this study examines the relationship between firmlevel corporate governance mechanisms and shareholder value during the crisis
Motivated by the studies of Erkens et al (2012) and Beltratti and Stulz (2012), this paper investigates whether shareholder value is influenced by non-compliance with the UK Corporate Governance Code (UK CGC) for financial institutions, before and during the financial crisis
Summary
Financial crises have existed throughout history, from the Tulip Mania in the 1600s to the recent European debt crisis. This study contributes to the understanding of the importance of contextual factors on the impact of non-compliance with a prescribed code of corporate governance and shareholder value before and during the financial crisis period.. Motivated by the studies of Erkens et al (2012) and Beltratti and Stulz (2012), this paper investigates whether shareholder value is influenced by non-compliance with the UK CGC for financial institutions, before and during the financial crisis. Evident that agency conflicts are more likely to be exposed during a period of financial distress and crisis In light of these empirical and theoretical insights, this study contributes to this debate and analyses how noncompliance with a prescribed code of corporate governance is associated with shareholder value of financial firms during a crisis period.
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