Corporate governance

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55 ISSN 2152-1034

Corporate Governance in the U.K: Audit Committees and

disclosure Arrangements – A Web-Based Analysis

Mohamed Hegazy, American University in Cairo

Karim Hegazy, Partner, Crowe Dr. A.M.Hegazy & Co.

Abstract

The main objective of this research is to assess whether UK listed companies comply with

the U.K code of corporate governance regarding audit committees and disclosure

arrangements. The research also aims at testing whether the companies’ size and board

composition affect the management’s decision to comply with the requirements of the

U.K code. Data was collected from the U.K listed FTSE companies. Descriptive statistics

including frequency tables, mean, other central tendency measures and regression

analysis were used to test the research hypotheses. The findings of the descriptive

statistics show most of the listed companies comply with the U.K code. The results of the

regression analysis indicate a small association between the size of the companies

described by the number of employees and the degree of compliance with the code.

Future research should be more directed toward testing the other requirements of the

code.

Keywords: Corporate Governance, Audit committees, Disclosure arrangements, nonexecutive

directors, board composition.

Introduction

After a multitude of high profile business failures and accounting restatements (Enron,

WorldCom and Quest) in 2001 and early 2002, the U.S Congress attempted to regain the investor

confidence in the financial reporting process by issuing the Sarbanes-Oxley Act of 2002 (SOX).

This law has required auditors to increase their audit work on internal control systems and placed

pressures on audit firms to reconsider their audit process for publicly traded companies. In July

2003, a combined code of corporate governance replaced the combined code originally issued by

the Hampel Committee on corporate governance in the U.Kin June 1998. The replacement of the

1998 code followed the collapse of a large number of companies in the US and attempted to

protect shareholders and investors’ interests in the Financial Times London Stock Exchange

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

33 ©JBSQ 2010

(FTSE). The code’s main and supporting governance principles covered a number of important

issues related to the day to day operations of the company including the management of the

company by the board of directors, board members remunerations, management accountability,

and management relations with shareholders, internal control and audit committee guidelines.

As stated in the preamble of the code listed companies are expected to comply with the code

provisions most of the time and departure from the provisions of the code may be justified in

particular circumstances.

This research aims at determining whether listed companies in the U.K do comply with

the provisions of the combined code of corporate governance regarding audit committees and

disclosure arrangements. The area of corporate governance is an important topic especially with

the current financial crisis affecting many economies and related businesses. In such

circumstances, there is a need for better and more enhanced control over the operations of FTSE

listed companies. In addition, the research also aims at determining whether the characteristics of

some listed companies mainly the size of the companies and the composition of the board can

affect management’s decision to comply with the code. The size of the company can be

interpreted using the companies’ total turnover and number of employees while the number of

non-executive directors will be used to describe the composition of the board.

The research study is composed of four sections. The first section is an introductory

providing insight into the research question and related objectives. Section 2 reviews the

literature related to the evolution of corporate governance in the U.K Furthermore, this section

presents some of the literature that shows how companies’ performance has been enhanced by

issuing corporate governance principles and guidelines. The duality in roles by the chairman and

CEO, board composition & non-executive directors and the role of audit committee are analyzed

in this respect. Section 3 discusses the research methodology used including the design of a

checklist based on the provisions of the code especially regarding the audit committees and

disclosure practices. It also presents the statistical analysis and data collection methods. Section

4 presents the research conclusions, limitations and recommendations for future research.

Literature Review

Corporate governance was defined as ’a system by which companies are directed and

controlled’ (Cadbury report 1992, p.5). Corporate governance was also described as an ‘’internal

system encompassing policies, processes and people, which serve the needs of shareholders and

other stakeholders by directing and controlling management activities with good business sway,

objectivity accountability and integrity’’ (O’Donovan, 2008). Corporate governance is understood

as a set of relationships between a company, its management, its board, its shareholders and

other stakeholders. Corporate governance is highly rated as it not only provides the structure

through which companies objectives are set but also how they are monitored, maintained and

achieved. Figure (1) describes the classic the corporate governance structure.

Figure 1. The classic corporate governance structure

(Boyd, 1996, p. 169)

Having a bad corporate governance structure may be disadvantageous as it can threaten

the integrity of governance professionals in terms of their public reputation and their professional

liability (Jones and Pollitt, 2001). Broadly speaking, corporate governance deals with external

aspects such as the relationships with stakeholders as well as internal aspects such as internal

controls and board structures. (Mallin et al, 2005). In fact, corporate governance is an essential

tool nowadays for any corporate success and affects many aspects of the organization and

business activities. In the U.K there were three major periods identified for the evolution of

corporate governance. The 1st period was characterized by the dominance of the funding family

and began from the industrial revolution to the 1920s. The 2nd period was mainly marked by the

rise of the professional manager concept and covered the time following the 1920s to the 1970s.

The 3rd period from the 1970s was characterized by the increased accountability to the society

(Gomez and Korine, 2005).

Board of Directors

Auditor

Chief Executive

& Management

Chair

Appoin

Report

Elect

Audit

Appoint

Report

Shareholders

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

35 ©JBSQ 2010

Table (1) presents more information about how corporate governance concept evolved through

the previous centuries.

Table 1: The evolution of corporate governance and the procedures of democracy

19th century-1920s 1920s-1970s 1970s-21st

century

Model of

reference for

corporate

governance

Familial Managerial Popular

Economic

enfranchisement

Implementation

Creation of rights to

ownership

independent of

social standing

Reinforcement

Strengthened by law

and corporate

practice. Public

general meetings

become standard

Reinforcement

Strengthened by

new rules on the

right to vote;

protection of

minority interests

Separation of

ownership/control

No Implementation

Generalization of the

limited liability form,

with boards and

disclosure

requirements

Reinforcement

Increasing board

supervision over

managers

Representation

with public debate

No No Implementation

Mass ownership;

stakeholder

activism

(Gomez and Korine, 2005, p. 747)

Following the prolonged period of economic growth in the 1980s the economy began to

show signs of overheating mainly through rises in GDP growth and asset prices. This led to

major scandals in the U.K in the late 1980s and early 1990s such as the collapses of BCCI,

Guinness, and Polly Beck as well as the controversy over directors pay and the lack of controls

and business conduct (Jones and Pollitt, 2001).The Cadbury report was issued in 1992 as a first

attempt to try and provide guidelines and foundations of a set of corporate governance codes so

that scandals and business collapses could be minimized in the future and was a product of the

Financial Reporting Council, the London Stock Exchange and the accountancy profession. Table

2 presents the main recommendations of the Cadbury report.

Table 2: Main recommendations of the Cadbury Report

Governance issue Cadbury Code Recommendation

Separate CEO and chairperson Recommended but not compulsory

Nomination of Directors Formal board process via nomination committee

dominated by outside directors

Outside Directors Minimum of 3 non-executive directors

Independence of Directors Majority of non-executives to be independent

Rotation of Directors Directors to be appointed for specific terms with

non-automatic reappointment

Pay and Bonuses Annual Report to reveal disaggregated director’s

pay; remuneration committee of board to be

dominated by outside directors

Independence of the Auditor Audit committee of the board to be formed,

comprised exclusively of outside directors

Flow of information to the board Board to have a formal schedule of decisions;

directors to have paid access to outside advice

Greater Scope of Auditing Auditors to review compliance to the Code,

including directors’ statements on going-concern

and on internal audit effectiveness

(Boyd, 1996, p.170)

The main feature of Cadbury report was self regulation approach whereby reporting of

compliance to the code was part of the listing requirements for public companies in their annual

reports showing the extent of compliance with the code. However, the Cadbury report failed to

achieve its objectives due to the limitations of its mandate report as it was silent on non financial

aspects of governance and to the size of a firm (Boyd, 1996). There was no distinction made

between large and small listed firms in terms of compliance with the code. Furthermore, Cadbury

report had recommended the establishment of a remuneration committee consisting of non

executive directors but details of its policies had not been precluded or examined. Moreover,

Cadbury report did not go in detail about the level of executive pay (Conyon and Peck, 1998).

As a result of all such criticism, the Greenbury report was issued in 1995 covering the

level of executive pay and director’s remuneration (Greenbury, 1995). The report addressed the

functioning of the remuneration committee made up of non executives who would determine

both individual executive pay and pay policy. The remuneration committee was responsible for

issuing a statement of compliance or non compliance in the annual report. The report also

emphasized the importance of timely and accurate disclosure. In 1998, the Hampel report was

later issued to review the progress of companies in compliance status, promote high standards of

corporate governance in the interest of investors’ protection and to preserve and enhance the

standing of listed companies in corporate governance levels (Hampel, 1998). The main

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

37 ©JBSQ 2010

recommendation was that companies should include in their annual reports a narrative statement

of how they apply the relevant principles of corporate governance to their particular

circumstances. However, the report can be seen as endorsing the Cadbury report but adding

nothing new to the main requirements of such report (Dahya et al, 2002).

To overcome application problems of the Hampel report, a Turnbull Report and revised

Combined Codes were issued in 1999, 2003 and 2008 respectively. The Turnbull Report focused

on how to implement best practice systems of internal control, the need for a board statement on

internal control and discussed the appropriateness of having an internal audit function (Turnbull,

1999). The report was short and generally perceived as completed the work left unfinished by the

Hempel report in this area. At the same time, the revised Combined Code issued in 2003 aimed

primarily to advance the best practice through revisions of the code and to focus more on the

behaviors and relationships of the best people available, their good qualifications and relevant

experience, which are essential for an effective board. Finally, the revised code issued in 2008

included guidelines of the audit committee that were separately published for listed companies

(FRC, 2008).

The issuance of the first Combined Code in 1998 was not mandatory confirming the

tradition characterizing the U.K regulating environment which is evident in voluntary disclosures

rather than legal enforcements. The philosophy of the ‘comply or explain’ principle offers

intelligent discretion and flexibility and allows for exceptions of the actual rules. As Higgs

(2003, p.3) stated in his research study: ‘The brightness and rigidity of legislation cannot dictate

the behaviour or strengthen the trust I believe is fundamental to the effective unitary board and

to superior corporate governance.’ U.K listed companies are also required to issue a statement

of compliance with the detailed principles of the combined code in their annual reports. The

main role of the combined code is to shift the balance of power held by the company’s board and

its subsequent subcommittees away from the company’s main executive directors and instead

give greater prominence to non executive directors’ independence and role in the decision

making process and different companies corporate governance structures. The code also

emphasizes the importance of the separation between both roles of the company’s chairman and

CEOs. Furthermore the code sets out provisions relating to the composition of the board of

directors and its main principles and duties as well as clearly setting out the functions of the three

main committees which are the remuneration, audit and nomination committees as well as

stressing the importance of the need for non executive directors in the boards. In the following

sections the researcher will discuss details associated with the main characteristics of the code of

corporate governance.

The U.K code of corporate governance regards duality as undesirable and recommends

the separation of the CEO and chairman positions i.e. no one person should hold both posts. This

is to avoid concentration in the decision making in only one individual and to maintain the

balance of power within the board of directors. Prior research on the impact of duality of CEOs

and chairman duties has given different results. Jensen (1993) points out that when one

individual holds both positions, internal control systems may fail as key functions of the board

cannot effectively perform their duties which also include evaluations and firing of the existent

CEO. Forker (1992) was of the opinion that duality was associated with poor disclosure which in

turn results in ineffective monitoring of managerial opportunistic behaviour. Moreover, Fama

and Jensen (1983) concluded that the concentration of all decisions (management and control) in

one person reduces the required effectiveness needed in monitoring top management. Another

study by Cosh et al (2006) found that duality has a negative impact on announcements and long

run returns but a relatively positive effect on key operating performance measures. Brickely et al

(1997) also found that separate CEO and chairman may engender costs in monitoring the

chairman and information sharing costs between them.

On the other hand, Boyd (1995) found that combining both roles in one person is

associated with higher profitability. In contrast Rechner and Dalton (1991) found that combining

the roles of a chairman and CEO reduces profitability whereas Baliga et al (1996) found no

effect on performance. Based upon the findings of all the above studies, the researchers believe

that the separation of CEO and chairman positions is important for better management of the

company and possible control effectiveness over the business operations.

The board of directors is seen as an internal mechanism whose main duties are to take

some of the major decisions on behalf of shareholders and to align owners’ incentives with the

management by ensuring that the management behaviour is consistent with the owners’ interest.

In a research study by Butler (1985) he found that board of directors dominated by outside

directors are more likely to behave in shareholders’ interest. However this was not always the

case as Holl (1975) found insignificant differences. Other studies such as the one made by Faccio

and Lasfer (1999) found no specific relationship between board ownership and firm value in

general. This was also confirmed in US in a study by Hermalin and Weisback (2003) as they

found no association between firm performance and board composition.

However, the effects of board composition on voluntary disclosures were mixed as

Beasley (1996) found that non executive directors are positively related with the board’s ability

to influence voluntary disclosure decisions. Dahya et al (2007) found that board composition has

no meaningful impact on financial performance. It is also often believed that the smaller the

boards the more effective they are specially in taking specific and important decisions. This was

confirmed by Lipton and Lorsch (1992) and Jensen (1993) as they criticized the performance of

large boards’ problems in poor communication and decision making. According to Jensen (1993)

as groups increase in size they become less effective because the coordination and process

problems overwhelm the advantages from having more people to draw on. In addition to that

CEO performance incentives provided by the board through compensation and threat of

dismissal operate less strongly as board size increases and financial ratios related to profitability

and operating efficiency appear to decline as board size grows. Also, the effect of the board size

was found to have an insignificant effect on takeover by firms. This was confirmed in the U.K in

a study by Conyon and Peck (1998) who examined 481 listed companies from 1992 to 1995 and

found a negative effect of board size on both market and book value and profitability.

At the same time, non executive directors (NED) are defined as being independent of

executive management positions or other management functions of the company and free from

any relationships which may affect their judgment. Some of the advantages of having a large

number of non executive directors are the valuable business experience and views they offer

(Hanniffa and Cooke, 2002). In addition, non executive directors can also contribute to

objectivity, impartiality as they look at decisions and issues from a wider and broader

perspective than executive directors. Moreover, they are able under the new provisions of the

combined code to challenge policies of the executive directors which they feel are not in the

interest of the company’s shareholders. The reasons for the effective monitoring of companies’

board decisions by non executive directors are reputation concerns and fear of lawsuits.

Hermalin and Weisbach (1991) and Dahya et al (2007) found no relation between firm

performance and function of outside directors. This was not supported in a research by Baysinger

and Butler (1985) as they found that companies perform better if there are more outsiders in the

board. Rosenstein and Wyatt (1990) also found out that new appointments of non executive

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

39 ©JBSQ 2010

directors are linked with company performance. Another study by Klein (2002) examines

whether audit committees and board characteristics are related to earnings management to the

firm. He found that firms with board committee of more than a majority of independent directors

are more likely to have abnormal accruals than others. Using a Cross sectional analysis he found

a negative association between abnormal accruals and the percentage of independent directors

but no evidence of a systematic association between having an independent audit committee and

abnormal accruals. Finally, it was tested that the proportion of non-executive directors is

associated with better specific decisions including acquisitions, CEO turnover and executive

compensation (Hermalin and Weisbach, 2003).

However having a large number of non executive directors may be disadvantageous as

they only meet a few times during a year and hence perform their duties on an irregular basis.

(Pass, 2006; Weir and Laing, 2000). Also, outside directors often lack the information necessary

for decision making as they do not fully understand the business or have little time to devote to

their duties. This fact was supported by Yermack (1996) as a negative relationship between the

proportion of outside directors and company’s performance was found. Another study by Weir

and Laing (2000) showed that the number of non executive directors in the U.S have an

insignificant impact on share price performance but a relatively negative impact on profitability.

The results of all the above studies confirm the notion that the board of directors and its

composition is an important issue in corporate governance and the success of any company is

significantly measured by the board effectiveness and independence.

From the above analysis, we can identify a number of research hypotheses interpreting

the decision of compliance with the U.K code. As shown in the hypotheses below, the decision

of compliance may be affected by the size of the company and/or the composition of the board.

The size of the company can be interpreted using the companies’ total turnover and number of

employees while the number of non-executive directors will be used to describe the composition

of the board.

H1: The listed companies in the U.K comply with the requirements of the code of corporate

governance regarding disclosure arrangements.

H2: There is a relationship between the size of the company and the level of compliance with

disclosure arrangements.

H3: There is a relationship between the composition of the board and the level of compliance

with disclosure arrangements.

Over the past years the role of audit committees has developed dramatically to meet the

challenges of changing economic, social and business environments and is seen as a powerful

device for improving value of relevant intellectual capital disclosure. The audit committee

should consist mainly of non executives. The audit committee’s memberships should not include

directors who are current employees, former employees within the last three years, employees

who have cross compensation committee links nor have immediate family members of an

executive officer.

Three key provisions were stated in the U.K Combined Code of 2003 and audit committee

guidelines in 2008 regarding the composition of audit committees.

· At least one audit committee member should have relevant financial experience

· Three meetings should be held annually to coincide with duties within the audit and

financial reporting cycle

· only relevant members and the chairman should be present at the meetings

Different studies were carried out to test whether audit committees have a key role in the

success and performance of a company. Ho and Wong (2001) found out that effective audit

committees would certainly improve internal control mechanisms and act as means of

minimizing agency costs and the presence of an audit committee is closely associated with more

reliable financial reporting, enhanced quality and increased disclosure. This view was also shared

by Olson (1999) as he concluded that inactive audit committees would merely monitor

managements effectively and hence lead to a negative impact on the company. Again the issue of

independence and non executive directors are crucial for audit committees.

Other studies confirmed the fact that audit committees composed of less than a majority of

independent directors are more likely to have a high ratio of abnormal accruals than others. Klein

(2002) argued that board independence and audit committees are positively related to market to

book values past negative earnings and the size of a firm. However a different case study by

Mangena and Pike (2005) found no relationship between the size and independence of audit

committees and voluntary disclosure arrangements made by companies. To sum up, studies may

have provided different findings associated with the role of the audit committee in enhancing the

company's performance but all agreed that it is an important element of corporate governance.

The more independent and qualified the members of the audit committee, the better they serve

stakeholders and other users in ensuring proper control over the company's activities and

performance.

From the above analysis, a number of research hypotheses can be identified to interpret the

decision of compliance with the U.K code. As shown in the hypotheses below, the decision of

compliance may be affected by the size of the company and/or the composition of the board.

H4: The listed companies in the U.K comply with the requirements of the code of corporate

governance regarding audit committees.

H5: There is a relationship between the size of the company and the level of compliance with

audit committees.

H6: There is a relationship between the composition of the board and the level of compliance

with audit committees.

Research Methodology

Data was collected using a checklist constructed to test the level of compliance of U.K

listed companies with the combined code concerning mainly the audit committees and disclosure

arrangements. The audit committee part in the checklist included 14 sub elements discussing

guidelines related to the composition and function of the committee whereas the disclosure

arrangements included 15 sub elements for good disclosure practices and as a whole the checklist

is about 3 pages long. The 1st part of the data collection was done manually. The researchers

used the internet to access the most recent annual reports of the top (FTSE) 100 companies in the

U.K which was for the year 2008. The Financial Times London Stock Exchange (FTSE) is

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

41 ©JBSQ 2010

known to be one of the most attractive stock markets in the world and an active market for IPO

(Initial Public Offering) for both local and foreign companies, a matter which will require

procedures or elements of corporate governance to protect the funds of those investors. The

checklist was then used to examine if each company would comply with the main requirements

of audit committees and disclosure arrangements. When compliance was evident a 1 was ticked

otherwise it was given a Zero. This process was repeated for each of the (FTSE) 100 U.K

companies. Most of the data collected was of qualitative nature.

The second part of the data was collected using the software Financial Analysis Made

Easy Database (FAME). Several aspects for the size of the company and the composition of the

board such as the company’s latest turnover figure, number of employees and the number of non

executive directors for all of the (FTSE) 100 U.K companies were collected in order to perform

the detailed descriptive statistics as well as regression analysis and to test whether any of the

characteristics of listed companies do have any effect on the degree of compliance with the code

of corporate governance. In cases where data required was not available in specific companies,

they were not replaced but instead treated as not available information and those companies with

missing aspects were totally ignored in the regression analysis performed thereafter. Therefore in

the regressions the number of observations were not 100 but varied between 82 and 87 according

to the variables chosen for testing purposes.

Data Analysis

Several central tendency measures such as the mean, mode, median were computed to

assess the average degree of compliance of all U.K companies in respect to the code of corporate

governance. However, estimating the mean values had some difficulties as they are sometimes

influenced by extreme values therefore other central tendency measures were also undertaken

and performed to strengthen and support the analysis findings. On the other hand, data variation

can be measured in three different ways: standard deviation, range (minimum and maximum

values) and percentiles. The researchers computed the above measures to show the spread of the

results more clearly and give a better picture of them. To be able to compare the spread of data

between the financial measures, which are of different magnitudes, the coefficient of variation

was also computed as its values can be easily compared and the larger the coefficient of variation

the larger the relative spread of the data (Saunders et al, 2006). The researchers analyzed these

variations and gave possible interpretations and explanations when evident.

Regression Analysis

The second part of the analysis covered a multiple regression analysis made in order to

test whether there is any association or relationship between the three independent variables

chosen: Number of non executive directors, latest turnover figure and finally the number of

employees in each firm and the degree of compliance by companies in relation to the audit

committees and disclosure arrangements. The researchers used the statistical software package

‘’Stata’’ which main capabilities include data management, statistical analysis and custom

programming. The researchers made several regressions of each individual variable on the

degree of compliance. The three main aspects which were looked at were: first, the coefficient

which mainly shows the magnitude and direction and the variation of the regression. The second

and most important aspect to be considered is the p-value which shows if the test is significant or

not. Finally, the R2 which mainly explains how much of the dependant variable is explained by

the independent variable was calculated and the higher the percentage the better. Then, multiple

regressions were performed including all 3 independent variables in order to get clearer results as

each model alone was not that significant. Multiple regressions on each compliance aspect alone

were made: the audit committees and the disclosure arrangements in order to test whether there

might be any association between the independent variables chosen and each individual

compliance aspect.

Results of Descriptive Analysis of the Disclosure Arrangements

Table 3 presents the main elements of the disclosure arrangements under the U.K code of

corporate governance and the degree of compliance by listed U.K companies. The main

disclosure elements cover several aspects such as the composition of the board and its members

as well as the 3 main committees represented by the remuneration, audit and nomination and

their respective duties. It also covers elements such as the role, names and functions of the non

executive directors.

Table 3: Descriptive Analysis of the Disclosure Arrangements

Under the disclosure arrangements there were 15 elements selected for testing. Two

elements are complied with by all of the (FTSE) 100 companies. The elements are the disclosure

Elements of disclosure

Number

companies

complying

Percentage

compliance

Names of board/CEO/Chairman 100 100

Going concern assumption 100 100

Nomination committee and its responsibilities 96 96

Remuneration committee and description of its work 96 96

Directors report /audit report and their respective reporting

responsibilities 96

Nr of board and subcommittee meetings and attendance by

directors 95

Review of Internal controls 95 95

Separate section describing work of audit committees in

discharging responsibilities 88 88

Separation of duties management /board 87 87

Non executive directors names who are believed to be independent 79 79

Performance evaluation of the board its committees and directors 62 62

Understanding of company by Non-executive directors 30 30

Explanation that if non audit services are provided objectivity and

independence of the auditor is safeguarded 18 18

Absence of internal audit function and its reasons 0 0

Reasons given for no acceptance of audit committee

recommendation by the board and a statement by the audit

committee showing their position 0

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

43 ©JBSQ 2010

of the names of the board, CEO and chairman and the second is the going concern element. This

is expected as every company is required to include such information in their annual reports

including the going concern assumption. There were 2 elements not complied with at all by the

whole group of listed companies. They cover reasons should be provided if no internal audit

function exist and situations where the audit committee recommendations are not accepted.

These disclosures were not adhered to by companies unless matters exist or occur. However

these aspects were included by the researchers in the design of the checklist to maintain the

originality and the same elements as shown in the U.K code.

Out of the 15 available elements seven are complied with by a percentage of 95% or

higher which is a significant figure and shows that half of the elements under the disclosure

arrangements are complied with by almost all of the companies. These elements include

disclosure about the nomination and remuneration committees and their responsibilities, the

number of board members and subcommittee meetings and attendance by directors, the review of

the internal control, a separate section describing the work of the audit committee and finally the

performance evaluation of the board, its committees and directors. In addition, two third of the

elements of disclosure arrangements are complied with by almost 80 companies showing

significant level of compliance of the code for disclosure arrangements. Table 4 shows a

summary of the descriptive statistics’ results in relation to disclosure arrangements elements. The

mean average compliance is almost 70% increases to 80% if we exclude the last 2 elements with

a compliance of 0%. This indicates that companies are complying with the majority of the

elements mentioned in the combined code and its related attachments in respect to disclosure

arrangements. The above results provide evidence for the acceptance of H1.

Table 4: Descriptive statistics results for disclosure arrangements

Descriptive Measure Results

Mean 69.4677

Median 88

Mode 96

Standard Deviation 37.73567

Coefficient of Variation 54.32196

Minimum 0

Maximum 100

25th Percentile 46

50th Percentile 88

75th Percentile 96

However, the researchers noticed the wide spread of data as shown by the minimum and

maximum results given by 0 and 100. Percentile statistics show that although the 25th percentile

rank is 46 which are due to the 2 elements not complied with by any company it only implies

that a minority of companies don’t comply with the majority of the code issues selected for

testing. Moreover looking at the 50th percentile rank it can be seen that about half of the elements

are complied with by a very high number of companies, namely 88. Finally, the coefficient of

variation is calculated and is found to be over 50% which means that there is a large spread of

data and the data are uniform i.e. less dispersed.

From the results obtained we can state that the code of corporate governance is mainly

used by companies as a guideline and as a help to maintain good corporate governance structures

and norms but not as a strict code where all companies should comply with all its requirements.

Results of the analysis of audit committee elements

Table 5 provides the results of the descriptive analysis regarding elements of the audit

committees. The findings of the descriptive analysis show that the highest element of compliance

was the audit committee meetings with a minimum of 3 times a year. The majority of companies

had active audit committee with some of them having 6 or more meetings per year. The majority

of companies also disclosed the terms of reference of the audit committee besides giving the

names of the members of the committee and their qualifications. An average of around 95% was

found for all the above mentioned characteristics for the audit committee guidelines.

Table 5: Results of the Descriptive Analysis for Audit Committees

Moreover, 90 companies representing 90% of those listed in FTSE provided on their

website separate sections to describe the work of audit committee and its responsibilities. This

provides strong evidence about the willingness of the management to show an effective

monitoring role of the committee of the company's internal control system, audit function and

management risk models. The approval of the appointment of internal audit head by audit

committee represented only 16%, a low compliance percentage indicating continued struggles

between top management and the audit committee about such decision making. It is expected

that with the wide recognition of the role of the audit committee this element would be enhanced

and the audit committee will have a better say in the appointment of the Head of internal audit

department. At the same time, the low level of compliance (only 16%) of whether audit

Elements of audit

Number

companies

complying

Percentage

compliance

Audit committee meetings /assumption 3 times at least 97 97

Number of audit committee meetings 96 96

Terms of reference of audit committee 94 94

Members of audit committees names and qualifications 93 93

Separate section to describe work of audit committee and

responsibilities 90

Audit committee approval of risk management/internal control 88 88

Summary of the role of audit committee 84 84

Financial experience of at least one member of audit committee 82 82

Report on the way audit committee has discharged its

responsibilities(Audit) 79 79

Annual review of the audit committee by the board 45 45

Internal audit work and role 35 35

Approve appointment of internal audit head by audit committee 20 20

Non audit services provided or not 16 16

Disagreements between board and audit committee 1 1

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

45 ©JBSQ 2010

committee approves non audit services for external auditor may not reflect non-compliance with

the code in this matter but rather companies refuse to require such services from their external

auditors.

In addition, the existence of any disagreements between the board and audit committee

had a low percentage. This may be justified as no disputes might have occurred between the two

bodies or disputes may have occurred but quickly solved through discussion and appropriate

decision by both parties. Out of the 14 available elements there were 5 elements complied with

by a percentage of over 90% and 9 elements were complied with by 80% of the companies

which is a reasonably acceptable figures and shows that the majority of companies are

complying with the code regarding audit committee requirements.

Table 6 includes a summary of the descriptive statistics results for audit committees. The

mean average compliance is 65.71%, however excluding the last element which is only complied

with by 1 company the mean increases to 70% which is a reasonably good figure. Such results

show that companies are complying with the majority of elements in the code in respect to audit

committees. It is also evident that the mean and median are not far apart which may imply that

the measures can be approximated to a normal distribution. The mode value, however, shows no

elements complied with by the same number of companies. Also noticeable is the spread of data

as shown in the minimum and maximum values which are 1 and 97 respectively. The percentiles

are also calculated to support the fact that data are spread widely however it is clear from the 50th

percentile that over half of the elements are complied with by a percentage of 83% which is a

relatively high number.

Table 6: Results of Descriptive Statistics of Audit Committees

Descriptive Measure Results

Mean 65.71429

Median 83

Mode N/A

Standard Deviation 34.44601

Coefficient of Variation 52.41784%

Minimum 1

Maximum 97

25th Percentile 37.5

50th Percentile 83

75th Percentile 92.25

Finally the standard deviation is calculated and found to be 34.44601, showing the extent

to which the values differ from the mean. However to get clearer results the coefficient of

variation is calculated (52.41784 %) which is over 50% supporting the existence of a large

spread of data and only few elements are not complied with by some companies. The coefficient

of variation result of over 50% also shows that data are uniform i.e. less dispersed. The above

results provide evidence for the acceptance of H4.

Results of the Regression Analysis

To test whether there is any association between the level of compliance for both audit

committees and disclosure arrangements figure and the three independent variables latest

turnover figure, the number of employees and the number of directors, a regression is performed

for each independent variable and the total degree of compliance. The results of these three

regressions obtained were that each model alone is not significant except for the regression

containing the number of employees with a p-value of .006 = 0.6% which is significant at the 5%

& 1% levels. The problem with such result is that the coefficient was very small. The p-values

for the other two regressed variables are 0.103 and 0.754 respectively which in turn are

insignificant.

Table 7: Reg. compliance turnover

Regression Measures Results

Number of observations 87

R-Squared 0.1310

Adj R-Squared 0.0196

Coef 1.24e-08

Std. Err. 7.53e-09

T 1.65

P-value (95% conf. interval) 0.103

Table 8: Reg. compliance employees

Regression Measures Results

Number of observations 96

R-Squared 0.0766

Adj-R-Squared 0.0668

Coef -0.000125

Std. Err. 4.49e-06

T -2.79

P-value (95% conf. interval) 0.006

Table 9: Reg. compliance directors

Regression Measures Results

Number of observations 89

R-Squared 0.0011

Adj-R-Squared 0.0104

Coef -.0444828

Std. Err. .1417932

T -0.31

P-value 0.754

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

47 ©JBSQ 2010

Regression results for all 3 individual variables combined with compliance figure

To investigate further, we specified our model better by controlling for the three variables in

the same model. The main results are as follows:

· For every 1 point increase in the latest turnover figure the percentage change in

compliance changes by an increase in 1.56 x 10-8. Its accompanied p-value is 0.048

which in turn is almost insignificant.

· For every 1 point increase in the number of employees the change in the compliance

figure is a decrease by 0.0000129 and a p-value of 0.012 which is significant however

with a small magnitude.

· For every 1 point increase in the number of non executive directors the change in the

compliance figure is an increase by 0.0960487 and a p-value of 0.531 which is

insignificant at the 5% level.

Table 10: Reg. compliance turnover employees’ directors

Measures

& Results

Turnover Employees Directors

Coef 1.56e-08 -.0000129 .0960487

Std. Err. 7.73e-09 5.02e-06 .1527762

T 2.01 -2.56 0.63

P-value 0.048 0.012 0.531

Number of observations 82

R-Squared 0.1094

Adj R-squared 0.0751

Also the R2 (0.1094) obtained suggests that 10% of the regression is explained by the specified

model chosen which is not a confirming figure but an acceptable one. Reasons for the low R2

obtained may be because compliance by firms with the code is discretionary and voluntary to the

management’s decision hence there is no obligation on firms to comply. Another reason for the

low R2 may be that the 3 variables looked upon in this research are not that sufficient to find any

relationship or association so there is a need for looking at other variables.

The most important finding of the regressions performed is that the variable of the

number of employees although with a very small magnitude is significant at the 5 % level hence

there is some association with the total compliance figure. The scientific interpretation from the

above results is that as the number of employees increases the average total compliance degree

decreases so it is preferable for companies to have a controlled number of employees to cover the

implementation of its operations.

Type

Regression of all 3 variables and audit committees compliance figure

The results of the regression for all 3 variables and audit committees however were very

similar to the ones obtained previously with the total degree of compliance as the number of

employee variable was the only one found to be significant although with an extremely small

magnitude as well as the R2 figure which is approximately 10% hence both results are identical

to the ones found previously.

Table 11: Reg. comp1 turnover employee directors

Measures

& Results

Turnover Employees Directors

Coef 9.24e-09 -8.06e-06 .0165339

Std. Err. 4.91e-09 3.19e-06 .0971103

T 1.88 -2.53 0.17

P-value 0.064 0.013 0.865

Number of observations 82

R-Squared 0.0993

Adj R-squared 0.0647

Regression results for all 3 variables and disclosure compliance figure

In relation to the compliance figure of the disclosure arrangements the p-value of the

number of employees’ variable in the regression was the only figure with a significant result of

0.032 at the 95% confidence interval. This suggests that there is a reasonably fair association

between the number of employees and the compliance figure relating to disclosure arrangements

hence a 1 point change in the employee figure results in a change in compliance relating to

disclosure arrangements by a decrease of 4.8 x 10-6. Thus, the lower the number of employees

the better and more effective they can be monitored hence leading to more controlled work and

better level of compliance.

Table 12: Reg. comp2 turnover employees directors

Measures

& Results

Turnover Employees Directors

Coef 6.32e-09 -4.80e-06 0.795147

Std. Err. 3.38e-09 2.19e-06 .0668008

T 1.87 -2.19 1.19

P-value 0.065 0.032 0.238

Number of observations 82

R-Squared 0.1002

Adj R-squared 0.0656

Type

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

49 ©JBSQ 2010

In summary it can be said that although there might be a small association between the

number of employees and the different compliance figures in total the 3 variables chosen have

not been found to have a good relationship to the compliance figures. Thus, the degree of

compliance by companies might be due to other factors or other explanations requiring further

research and analysis. The above results provide evidence for rejecting H3 and H6 as no

relationship was found between the composition of the board and the level of compliance with

the U.K code. Furthermore, the findings also rejected H2 and H5 as no relationship existed

between the size of company described by the total turnover and the level of compliance of the

U.K code with some significant relationship found between the number of employees and level

of compliance for both audit committees and disclosure arrangements.

Conclusion, Limitations and Recommendations

Corporate governance has become so important since 2002 as series of corporate frauds

and other catastrophes led to the destruction of billions of dollars of investments, the loss of

thousands of jobs, the criminal investigation and record–breaking bankruptcy filings. All these

conditions beside the need to restore the good reputation of the accounting profession and

protecting shareholders' interest created the need for tools and principles that increase

transparency. In 2003, a combined code of corporate governance was introduced in the U.K

covering several corporate governance structures and combining all main principles covered in

previously published codes and laws (Cadbury (1992), Greenbury (1995), and Turnbull (1999)).

Companies are required as a matter of best practice to fully comply with many of the aspects of

the code and its amendments issued in 2008 and if not explanations should be provided. The

current research was prepared to investigate and test the level of compliance by the (FTSE) 100

companies for two main aspects of the code mainly the audit committees and disclosure

arrangements.

The research methodology included the literature review covering issues and matters

relating to the nature of corporate governance with an overview of the evolution of corporate

governance codes in the U.K Moreover, the research analyzed the main characteristics of

corporate governance such as duality, board composition and non executive directors and audit

committees and reviewed previously made researches on whether these characteristics have any

effect on companies’ performance. Six hypotheses were developed. Two of these hypotheses, H1

and H4, tested whether U.K listed companies comply with the code of corporate governance

regarding audit committees and disclosure arrangements. The other four, H2, H3, H5 and H6,

tested whether relationships existed between the size of the companies and board composition

and the level of compliance with the U.K code. A detailed descriptive analysis was performed. A

regression analysis was also undertaken to test whether there might be any association between

the different levels of compliance and companies size and three independent variables namely

turnover figure, number of employees and number of non-executive directors

The results of the descriptive analysis indicate that the average degree of compliance

relating to both the audit committees and disclosure arrangements was found to be around 70%.

This is a significant result and confirms the acceptance of H1 and H4. The findings showed that

companies are nowadays using the code as a good base for their corporate governance structures

and performance assessment. There is a need, however, for companies to place more emphasis

on different elements such as internal audit work and non audit services. Only a small number of

companies comply with those elements. The main findings of the regressions performed was that

except for a small association found between the number of employees and compliance figure

(total and for each requirement alone) there is no significant association found between the other

two variables (i.e. turnover-and the number of non executive directors).

There are a number of limitations associated with the current research. First, the testing of

the level of compliance by listed companies of the code of corporate governance was limited to

two main elements of corporate governance namely the audit committee and disclosure

arrangements. Other elements which have not been tested include the role of the board of

directors, the external auditors, nomination and remuneration committees etc. Second the study

examined elements of audit committee and disclosure arrangements for the FTSE 100 companies

without testing for other companies listed in the FTLSE. Thus, the results of the study cannot be

generalized. Third, a limited number of companies’ characteristics namely the number of non

executive directors, number of employees and latest turnover figure were used to assess their

effects on the level of compliance by companies. Other characteristics including the size of the

company, capital of the company, total assets, and type of industry have not been tested. Fourth,

the limited number of non complying listed companies did not allow the researchers to make

more detailed investigations about possible reasons for such non compliance using either

interviews or telephone calls with the investor relation officers of specific companies, a matter

which was planned to be undertaken if the results provided ways to investigate such noncompliance

status.

However, a number of important recommendations can be derived from the findings of

this research. First, other listed companies' characteristics mainly the type of industry,

profitability and the size of the company assessed either by owners' equity or capital must be

analyzed and studied to test whether there is a significant relationship between these elements

and the level of compliance with the U.K code. Second, a larger sample of companies listed in

the FTSE must be selected for testing compliance levels to ensure a good representation of the

operating environment in the U.K coupled with an assessment of companies’ characteristics to

provide some insights into the reasons behind a high level of compliance with the code. Third,

interviews should be made with the investor relation officers of some of these listed companies

to inquire about reasons of non compliance with some of the elements of the combined code and

to identify management objectives associated with high compliance with the combined code.

References

Baliga, B., Moyer, R., & Ramesh, R. (1996). CEO duality and firm performance: what’s

the Fuss. Strategic Management Journal, 17 (1), pp. 41-53.

Baysinger, B., & Butler, H. (1985). Corporate governance and the board of directors:

Performance effects of changes in board composition. Journal of Law, Economics

and Organization, 1, pp. 101-124.

Beasley, M. (1996). An empirical Analysis of the Relation between the Board of Director

Composition and Financial Statement Fraud. The Accounting Review, 71, pp. 443-

465.

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

51 ©JBSQ 2010

Boyd, B. (1995). CEO duality and firm performance: A Contingency Model. Strategic

Management Journal, 16, pp. 301-312

Boyd, C. (1996). Ethics and Corporate Governance: The issues raised by the Cadbury

Report in the United Kingdom. Journal of Business Ethics, 15, pp. 167-182.

Brickley, J., Coles, J., & Jarrell, G. (1997). Leadership structure separating the CEO and

Chairman of the board., Journal of Corporate Finance, 3, pp. 189-220.

Butler, H. (1985). Nineteenth-Century Jurisdictional Competition in the Granting of

Corporate Privileges. Journal of Legal Studies, 14, pp. 129-166.

Cadbury Report (1992). Report of the Committee on Financial Aspects of Corporate

Governance, Gee Publishing, London.

Combined Code (1998). Principles of Good Corporate Governance and Code of Best

Practice, London: Gee & Co-Ltd.

Cosh, A., Guest, P., & Hughes, A. (2006). Board Share Ownership and Takeover

Performance. Journal of Business Finance & Accounting, 33, pp. 459-510.

Chambers, A. (2005). Audit committees: practice, rules and Enforcement in the UK and

China. Corporate Governance: An international Review, 13 (1), pp. 92-100.

Collier, P., & Zaman, M. (2005). Convergence in European Corporate Governance: the

Audit Committee Concept. Corporate Governance, 13 (6), pp.753-768.

Conyon, M., & Peck, S. (1998). Board Control, Remuneration Committees, and Top

Management Compensation. Academy of Management Journal, 41, pp. 146-157.

Corrin, J. (1993). The Cadbury Report –A Blatant Slur on Executive Directors Integrity.

Accountancy (UK), 111, pp. 81-82.

Cosh, A., Guest, P., & and Hughes, A. (2007). UK Corporate Governance and Takeover

Performance. Centre of Business Research, University of Cambridge, Working Paper

357.

Dahya, J., McConnell, J., & Travios, N. (2002). The Cadbury Committee Corporate

Performance and Top Management Turnover. The Journal of Finance, 57 (1), pp.461-

483.

Dahya, J., & McConnell, J. (2007). Board Composition, Corporate Performance and the

Cadbury Committee Recommendation. Journal of Financial and Quantitative

Analysis, 42 (3), pp 535-564.

Eng, L., and Mak, Y. (2003). Corporate governance and Voluntary disclosure. Journal of

Accounting and Public Policy, 22, pp. 325-345.

Erturk, I., Froud, J., Johal, S., & Williams, K. (2004). Corporate government and

disappointment. Review of International Political Economy, 11 (4), pp. 677-713.

Faccio, M., & Lasfer, M. (1999). Managerial ownership, board structure and firm value:

The UK evidence. Working Paper, City University

Fama, E., & Jensen, M. (1983). Separation of Ownership and Control. Journal of Law

and Economics, 26 (2), pp. 301-326.

Financial Reporting Council (2003). Combined Code on Corporate governance, Financial

Reporting Council, London.

Financial Reporting Council (2006). Combined Code on Corporate Governance,

Financial Reporting Council, London.

Financial Reporting Council (2008). Combined Code on Corporate Governance,

Financial Reporting Council, London.

Ford, R. (1988). Outside directors and the privately owned firm: are they necessary?.

Entrepreneurship: Theory and Practice, 13 (1), pp. 49-57.

Forker, J. (1992). Corporate Governance and Disclosure Quality. Accounting and

Business Research, 22 (86), pp. 111-124.

Gomez, P., & Korine, H. (2005). Democracy and the Evolution of Corporate Governance.

Corporate Governance: An International Review, 13 (6), pp. 739-752.

Goyal, V., & Park, C. (2002). Board leadership structure and CEO turnover. Journal of

Corporate Finance, 8, pp. 49-66.

Greenbury, S. (1995). Directors' Remuneration: Report of a Study group. Gee Publishing

Ltd, London.

Hampel, S. (1998). Committee on Corporate Governance: Final Report, Gee Publishing

London.

Hanniffa, M., & Cooke, T. (2002). Culture Corporate Governance and disclosure in

Malaysian Corporations. Abacus, 38 (3), pp. 317-349.

Hermalin, B., & Weisbach, M. (1988). The Determinants of Board Composition Rand.

Journal of Economics, 19, pp. 589-606.

Hermalin, B., & Weisbach, M. (1991). The effects of Board Composition and Direct

Incentives on Firm Performance. Financial Management, 20, pp.101-112.

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

53 ©JBSQ 2010

Hermalin, B., & Weisbach, M (2003). Boards of Directors as an Endorenously

Determined Institution: A Survey of the Economic Literature. Economic Policy

Review, 9 (1), pp.7-27.

Higgs, D. (2003). Review of the Role and Effectiveness of Non Executive Directors, Gee

Publishing, London.

Hillier, D., & McColgan, P. (2006). An Analysis of Changes in Board Structure during

Corporate Governance Reforms. European Financial Management, 12 (4), pp. 575-

607.

Ho, S., & Wong, S. (2001). A study of the relationship between corporate governance

structures and the extent of voluntary disclosure. Journal of International Accounting,

Auditing and Taxation, 10 (2), pp 139-156.

Holl, P. (1975). Effect of Control type on the performance of the firms in the U.K.

Journal of Industrial Economics, 23, pp. 257-271.

Jensen, M. (1993). The modern Industrial Revolution, Exit and the Failure of Internal

Control Systems. Journal of Finance, 48, pp. 831 -880.

Jensen, M., & Meckling, A. (1976). Theory of the Firm Managerial Behaviour Agency

Costs and Capital Structure. Journal of Financial Economics, 3, pp. 305-360.

Jones, I., & Pollitt, M. (2001). Who Influences Debates in Business Ethics? An

Investigation into the Development of Corporate Governance in the U.K since 1990.

ESRC Centre for Business Research, University of Cambridge Working Paper, 221,

pp. 1-45.

Jones, I., & Pollitt, M. (2004). Understanding how issues in Corporate Governance

Develop: Cadbury Report to Higgs’ Review. Corporate Governance, 12 (2), pp.162-

171.

Klein, A. (2002). Audit committee, Board of Directors Characteristics and Earnings

Management. Journal of Accounting and Economics, 33 (3), pp. 375-400.

Li, J., Pike, R., & Haniffa, R. (2008). Intellectual Capital Disclosure and Corporate

Governance Structure in UK firms. Accounting and Business Research, 38 (2),

pp.137-159.

Lipton, M., & Lorsch, J. (1992). A modest proposal for improved corporate governance.

Business lawyer, 48 (1), pp.59 -77.

Mallin, C., Mullineux, A., & Wihlborg, C. (2005). The Financial Sector and Corporate

Governance: The UK Case. Corporate Governance, 13 (4), pp. 532-541.

Mangena, J., & Pike, R. (2005). The effect of audit committee shareholding Financial

Expertise and Size on Interim Financial Disclosures. Accounting and Business

Research, 35 (4), pp. 327-349.

McCarthy, J. (2008). Corporate Governance: Better Compliance Helps the Bottom line.

Accountancy Ireland, 40 (3), pp.43-45.

McKnight, P., & Weir, C. (2007). Agency costs, Corporate Governance Mechanisms and

Ownership Structure in large UK Publicly Quoted Companies: A panel Data

Analysis. Quarterly Review of Economics and Finance, 49, pp. 139-158.

O’Donovan, G. (2008). The Corporate Culture Handbook: How to plan, Implement and

Measure a successful Culture change programme. Development and Learning in

Organizations, 22 (1).

Olson, J. (1999). How to make audit committees more effective. Business lawyer, 54, pp.

1097-1113.

Pass, C. (2004). Corporate Governance and the role of non executive directors in large

UK Companies an empirical study. Corporate Governance, 4 (2), pp. 52-63.

Pass, C. (2006). The revised combined code and corporate governance: An empirical

survey of 50 large U.K companies. Journal Managerial Law, 48 (5), pp.467-478.

Rechner, I., & Dalton, D. (1991). CEO duality and organizational performance: a

longitudinal analysis. Strategic Management Journal, 12, pp. 155-160.

Rosenstein, S., & Wyatt, J. (1990). Outside Directors, board independence and

Shareholder Wealth. Journal of Financial Economics, 26 (2), pp.175-191.

Saunders, M., Lewis P., & Thornhill, A. (2006). Research methods for business, Prentice

Hall, (4th) edition.

Sheridan, L., Jones, E., & Marston, C (2006). Corporate Governance Codes and the

supply of Corporate Information in the UK. Corporate Governance, 14 (5), pp. 497-

503.

Smith Report (2003). Audit committees combined code guidance. Financial Reporting

Council, London.

Stiles, P., & Taylor, B. (1993). Benchmarking Corporate Governance, An Update. Long

Range Planning, December, 26 (6), pp. 138-139.

Turnbull, N. (1999). Corporate Guidance for Internal control, Gee & Co, London.

Valenti, A. (2007). The Sarbanes –Oxley Act of 2002: Has it brought about Changes in

the boards of large U.S Corporations. Journal of Business Ethics 81, pp. 401-412.

Journal of Business Studies Quarterly

2010, Vol. 1, No. 2, pp. 32-55

55 ©JBSQ 2010

Weir, C., & Laing, D. (2000). The performance –Governance relationship: the effects of

Cadbury compliance on UK quoted companies. Journal of Management and

Governance, 4, pp. 265-281.

Weir, C., Laing, D., & McKNight, P. (2002). Internal and External Governance

Mechanisms their impact on the Performance of large UK Public Companies. Journal

of business Finance and Accounting, 29, pp.579-611.

Weisbach, M. (1988). Outside Directors and CEO turnover. Journal of Financial

Economics, 20, pp. 431-460.

Yermack, D. (1996). Higher market valuation of companies with a small board of

directors. Journal of financial economics, 40, pp. 185-211.

Author Biography

Mohamed Hegazy is a Professor of Accounting and Auditing at the Department of

Accounting, School of Business, the American University in Cairo. Dr. Hegazy holds two

bachelor’s degrees from Cairo University in Accounting and in law. He also holds two masters

degrees; one in Accounting from Birmingham University, U.K and the other in Knowledge

Based Systems (i.e. Expert Systems) from Edinburgh University. He received his Ph.D in

Accounting and Finance from Birmingham University, U.K. His research and teaching interests

include: financial reporting, auditing and other assurance services, information systems,

corporate governance, financial and administrative restructuring, and valuation studies. Dr.

Hegazy can be reached at: [email protected].

Karim Hegazy is an executive partner in Crowe Dr.A.M.Hegazy & Co- a member of

Crowe Horwath International – Chartered Accountants and Consultants. Karim holds a

bachelor’s degree in Accounting and Finance from Middlessex University – U.K as well as a

Masters degree in Accounting and Finance from Brunel University – U.K. Karim speaks fluent

German, English, and French languages. His areas of interest for research are financial audit,

corporate governance, cost accounting and financial reporting. Karim can be reached at:

[email protected].

Insert Header

Insert Summary

Insert Header

Insert Description

Insert View Team Link