Kingdom Companies Research Articles

A Comparison of the Statutory Provisions of the United Kingdom (UK) Companies Act 2006 and Ghana’s Companies Act 1963 (Act 179), to the Rule in Foss v Harbottle

This paper adopts the comparative approach in its bid to compare the exceptions to the rule in Foss v Harbottle1 under the statutory provisions of the UK Companies Act 2006 (CA 2006), and Ghana’s Companies Act 1963 (Act 179). The rationale is to critically examine the differences and commonalities of the Companies Acts of both the UK and Ghana. The article argues that minority shareholders in Ghana are given more protection in terms of the avenues opened to them to bring actions against the company or the controlling majority shareholders as compared to what pertains in the United Kingdom.

A Comparative Analysis of Shareholders’ Derivative Action under the United Kingdom and Nigerian Companies Acts

The rights of minority shareholders have been a recurring and dominant theme in corporate law. This is because such rights do not only allow minority shareholders to protect their individual and corporate interests, but also serve as a veritable instrument through which they enforce directors’ fiduciary duties. This article examines shareholder derivative litigation under the United Kingdom (UK) and Nigerian laws. It argues that although derivative suits in both countries have common law origin, comparatively the UK laws have more flexible, liberalized and expansive rules that enhance and protect the rights and interests of the company and minority shareholders than the Nigerian laws. It further argues that the UK laws confer wider powers and standards on courts to regulate the procedure for derivative suits than the Nigerian legal regime. It recommends that the Nigerian law should be reformed along the lines of the UK regime, albeit with retention of various extant provisions that enhance the rights of minority shareholders. The article proceeds in four major sections. Section 1 examines the distinctive features and meaning of derivative action. Section 2 discusses the advantages and disadvantages of derivative suits. Section 3 makes a comparative analysis of derivative suits under the UK and Nigerian laws using the major legal principles and procedures in both jurisdictions. Section 4 concludes the article.

An analysis of director interlocks on the Johannesburg Stock Exchange

Director interlocks, which occur when companies have directors in common, have concerned shareholders, the public and legislators since the early 1900s. The purpose of this paper is to analyse the interlocking directorships of the Top 40 companies listed on the Johannesburg Stock Exchange using small world theory and compare the results to research on interlocks in Italian, French, German, United Kingdom (UK) and United States (US) companies. South Africa was found to be closest to Italy, between the low-density models of the UK and the US, and the significantly higher-density models of Germany and France. This suggests that rather than just the two models (low density and high density), there is a continuum currently reflected with the UK and the US at one end, then South Africa and Italy, and then France and Germany at the other end. The presence of directors with multiple directorships indicates that the threats and benefits associated with multiple directorships may exist in South Africa.

The United Kingdom's Companies Act of 2006 and the capital asset pricing model

PurposeThe purpose of this paper is to consider the attainment of the corporate objective of the UK Companies Act of 2006 Section 172(1) from the perspective of financial valuations that are reliant on the cost of capital. The cost of capital plays an important role in many of the models and propositions that are routinely used for financial valuation and decision making.Design/methodology/approachFrom the perspective of financial valuations that are used to guide decision making that is in accordance with the corporate objective of the UK Companies Act of 2006 Section 172(1), managers and directors require a valid, reliable, and interpretable cost of capital. The theory, models, and propositions of financial management, whether they be investment, financing, or distributions (Sections 829‐853) decisions, are dependent on the cost of capital. This paper has three main tasks. First, the relevant sections of UK corporate statute with regard to the corporate objective need to be identified and presented. Second, a brief review of the function and role of the cost of capital for the valuations upon which investment, financing, and dividend decisions are based, is undertaken to ensure that the role and function of this key financial metric is clearly recognized. Third, since the capital asset pricing model (CAPM) is so widely and exclusively used, often without recourse to other approaches to calculation of the cost of capital, an update of CAPM empirical evidence is undertaken to affirm the 2004 findings and subsequent recommendations by Fama and French that the CAPM is not an acceptable way of calculating the cost of capital.FindingsIt is doubtful whether directors, who use an empirically invalid and unreliable valuation model such as the CAPM to calculate the cost of capital, will be able to meaningfully and purposefully make decisions consistent with the “enlightened shareholder value”. Managers and directors need to use approaches to the cost of capital that are valid and can be empirically verified.Practical implicationsThis paper recommends that directors of public companies who make decisions using financial valuations that embody the cost of capital should ensure that models other than the CAPM are used; otherwise, they may find it difficult unable to defend challenges to their statutory duty of attaining the corporate objective.Originality/valueAn update of CAPM empirical evidence is undertaken to affirm the findings and subsequent recommendations by Fama and French (2004) that the CAPM is not an acceptable way of calculating the cost of capital.

Dividends and Politics

Influential contributors to debates concerning corporate governance assert that it is impossible to understand key trends without taking politics into account. This proposition has, however, remained largely untested. This paper therefore offers an empirical study of the relation between politics and corporate governance, with the focus being on the determinants of dividend policy in publicly quoted United Kingdom (U.K.) companies between 1950 and the present. The departure point is the well-known partial adjustment model of dividend policy, which we augment to take into account the ideological orientation of the party in power and other potentially salient proxies for politics (e.g. tax policy and dividend controls). The model is tested by reference to aggregate annual data on earnings and dividends. The results indicate that the political placement of the party in office lacks explanatory power. Moreover, even when politics manifests itself in regulation explicitly designed to regulate corporate behaviour, political variables generally do not correlate in the predicted direction with dividend pay-outs. The evidence therefore is inconsistent with the proposition that politics shape corporate governance.

IAS Versus U.S. GAAP: Assessing the Quality of Financial Reporting in South Africa, the United Kingdom, and the United States

Abstract In this study, we investigate whether financial reporting, using International Accounting Standards (IAS) results in quality disclosures, given differences in institutional and market forces across legal jurisdictions. This study contributes to the global accounting debate by utilizing U.S.-based companies complying with U.S. Generally Accepted Accounting Principles (U.S. GAAP) as a benchmark for measuring the quality of IAS as applied by South Africa (S.A.) and United Kingdom (U.K.) companies. Although South Africa, United Kingdom, and the United States are common law countries with strong investor protection, South Africa's institutional factors and market forces vary from that of the U.K. and the U.S. South Africa's financial market is less developed than that of the U.K. and the U.S. We compare the discretionary accruals of firms complying with U.S. GAAP to the discretionary accruals of U.K. and S.A. firms complying with IAS. This allows a comparison between companies (S.A. and U.K.) operating under different institutional factors and market forces that have adopted IAS versus U.S. companies that report under U.S. GAAP. Our sample, consisting of U.S., S.A., and U.K. listed firms, contains 3,166 firm-year observations relating to the period 1999–2001. The results of our study indicate that S.A firms utilizing IAS report absolute values of discretionary accruals that are significantly greater than absolute values of discretionary accruals of U.S. firms utilizing U.S. GAAP. In contrast, U.K. firms utilizing IAS report discretionary accruals that are significantly less than the discretionary accruals of companies in the United States reporting under U.S. GAAP. This study contributes to the literature by providing evidence of the quality of financial information prepared under IAS and its dependency on the institutional factors and market forces of a country.

An exploratory study of capital budgeting practices in the United Arab Emirates

This study examines the capital budgeting process of a cross-sectional sample of companies in the United Arab Emirates (UAE). The study addresses two research questions. The first question deals with the extent to which modern capital budgeting techniques are practiced in UAE companies. The second question deals with the extent to which company size affects capital budgeting practices in UAE. The study also benchmarks the results obtained to those of recent surveys of United Kingdom (UK) companies. The study adopted a structured survey approach similar to that of Arnold and Hatzopoulos (2000) to collect information on companies' investment processes and decision criteria. The results indicate that the majority of the surveyed UAE companies follow the general trend of adopting discounted cash flows and formal risk analyses when making capital investment decisions. The results also indicate that the size of a company is not a significant determining factor for the sources of capital investment ideas. However, company size makes significant differences in terms of formalised procedures (e.g., budget committees, use of normalised processes, and use of post-project implementation audits) and selection of evaluation techniques.

The emergence of the UK auditor resignation legislation

This paper examines the emergence of the legislation relating to auditor resignation which now forms part of the United Kingdom's Companies Act 1985. It is argued that the legislation is best understood as part of the complex relationship between the profession and the state and the state's attempts to promote public confidence in a capitalist economy. Two case studies are provided to show that the legislation was conditioned by the state's concern to promote London as an international financial centre and strengthen perceptions of auditor independence.