• UK corporate governance effects on investor behaviour and firm performance before and during crisis

      Hawas, Amira Mohamed Refaat Mohamed (University of BedfordshireUniversity of Bedfordshire, 2014)
      The recent financial crisis has raised serious questions about the effectiveness of corporate governance (CG) in monitoring management and protecting investors’ interests. There is concern that ‘poor’ CG was, to a certain extent, a major cause of the current financial crisis. This thesis, therefore, investigates the crucial policy question of whether the quality of CG has any effect on financial performance, information asymmetry and on block shareholders’ investment decisions. This is achieved and presented in the form of three essays on CG practices in UK with a particular focus on the periods before and during the 2007/2008 financial crisis. The first essay aims to investigate the impact of firm-level CG on block shareholders’ investment decisions for a large sample of UK non-financial firms over the period 2005 to 2009. Using a panel data analysis, the results revealed the importance of CG for block shareholders’ investment decisions. Furthermore, the study results indicated that only institutional block shareholders consider CG to be important criteria for their investment decisions. Moreover, when the effect of CG on block shareholdings in both periods before and during crisis was examined, a significant difference in results appeared: an insignificant positive relationship in the pre-crisis period turned out to be significant during crisis. The result thus indicates that block shareholders viewed CG as particularly important during the crisis period. The second essay aims to examine the effect of CG on firm performance before and during the financial crisis. It also investigates the mediating effect of agency costs on the association between CG and firm performance. The results revealed that CG affects firm performance only in the period before the crisis, but no significant effect was found during the crisis period. Moreover, agency cost was proved to fully mediate the relationship between CG and performance in the pre-crisis period. The results point to an important issue, which is the need to re-evaluate CG not only in stable periods but also during turbulent times, and to evaluate its ability to perform effectively in such different conditions. The third essay investigates the effect of both CG and block ownership on information asymmetry. Further, the effects of CG in lessening the positive association between block ownership and information asymmetry is considered. The results revealed that CG affects information asymmetry only in the pre-crisis. In addition, block ownership was shown to have a significant and positive effect on information asymmetry during crisis periods suggesting that block shareholders benefit from their information advantage during crisis period which in turn worsens the information asymmetry problem. This suggests that block shareholders engage more in their private benefits rather than in efficient monitoring. The results also proved that CG is insignificant during turbulent period in lessening the negative effect of block ownership.