Helen Short

Managerial ownership and the performance of firms: Evidence from the UK

Given the governance issues arising from the separation of ownership from control, the ability to align managerial and shareholder interests via the managerial ownership of equity is an important topic of inquiry. The findings of the primarily US based literature suggest that management is aligned at low and possibly high levels of ownership but is entrenched (pursuing self interests) at intermediate ownership levels. This paper extends the US based literature in a number of important ways. First, the analysis is extended to the UK where there are important differences, as compared to the US, in the governance system. A comparative analysis of key differences between the US and UK governance systems suggest that management should become entrenched at higher levels of ownership in the UK. Some of the reasons for this suggestion are that in the UK management do not have the same freedom as their US counterparts to mount takeover defenses and institutional investors in the UK are more able to co-ordinate their monitoring activities. The empirical results of the paper confirm that UK management become entrenched at higher levels of ownership than their US counterparts. Second, the results from extending the analysis to consider different measures of firm performance and a more generalized form of the relationship confirm the general finding of the US literature of a non-linear relationship between firm performance and managerial ownership.

The Link between Dividend Policy and Institutional Ownership

This paper examines the relatively neglected link between dividend policy and institutional ownership. It is also the first example of using well-established dividend payout models to examine the potential association between ownership structures and dividend policy. Moreover, the paper presents the first results for the UK, where the institutional framework and ownership structures are different from those of the US. Using a UK panel data set, the role of institutional ownership in association to dividend payout ratios is analysed within the context of the dividend models of Lintner [American Economic Review, 46 (1956) 97], Waud [Journal of the American Statistical Association, 1996] and Fama and Babiak [Journal of the American Statistical Association, 63 (1968) 1132]. The results consistently produce strong support for the hypothesis that a positive association exists between dividend payout policy and institutional ownership. Furthermore, the results for an earnings trend model suggest a positive earnings trend component to the association between institutional ownership and the dividend payout ratio. In addition, there is some evidence in support of the hypothesis that a negative association exists between dividend payout policy and managerial ownership.

Capital Structure, Management Ownership and Large External Shareholders: A UK Analysis

This paper examines empirically the effects of management ownership and ownership by large external shareholders on the capital structure of the firm from an agency theory perspective. The paper extends the US literature on the topic by examining the effect of interactions between management ownership and ownership by large external shareholders on the capital structure of UK firms. For a sample of UK firms, the paper provides empirical evidence that suggests the debt ratio is positively related to management ownership and negatively related to ownership by large external shareholders. Furthermore, the presence of a large external shareholder acts to negate the positive relationship between debt ratios and management ownership; in the presence of a large external shareholder, no significant relationship between debt ratios and management ownership exists. These findings are consistent with the hypothesis that the presence of large external shareholders affects the agency costs of debt and equity.

The relationship between job satisfaction and managerial remuneration in small and medium-sized enterprises: an empirical test of ‘comparison income’ and ‘equity theory’ hypotheses

The relationship between job satisfaction levels and the remuneration of non-owner managers employed by a sample of 97 UK small and medium sized enterprises (SMEs) is investigated. The main empiric...

The Accounting Burdens Facing Small Firms: An Empirical Research Note

Abstract In recent years there has been much discussion regarding the burdens imposed on small firms by administrative requirements, and in particular those imposed by accounting requirements. The purpose of this note is to examine whether the relative burden of accounting requirements is general to small firms or specific to certain types of small firm. The main empirical finding of the note, using ordered probit analysis on a sample of 100 small firms, is that the relative burden of accounts as perceived by small firms is not contingent on the factors investigated.

Equity retention and initial public offerings: the influence of signalling and entrenchment effects

Within the context of initial public offerings (IPOs) the value of firms at the point of flotation appears to be positively and significantly related to the amount of equity retained by the original owners. But certain theoretical arguments and some limited empirical evidence suggest that the form of the relationship between firm value and retained equity may need further consideration. UK data is used for the first time to examine the relationship between equity retention and firm value at flotation. Empirical results indicate that the relationship is not significantly positive across the whole range of possible values. Firm value is found to be positively and significantly related to low and medium levels of equity retention, but not to high levels of retained equity. This adds to the evidence for other markets and casts further doubt over whether the retained equity variable is acting as a signal or has quite such a uniform effect as is commonly suggested in the literature.

Corporate Governance, Accountability and Enterprise

A system of corporate governance requires that a board of directors be accountable, while allowing the board to create wealth for the shareholders of the company. While recognising these twin objectives of a system of good corporate governance, the Cadbury Reports recommendations were directed towards issues of control and accountability. This has led to accusations that the emphasis on corporate accountability risks damaging the spirit of enterprise necessary for commercial and economic success. Given that the discussion concerning accountability and enterprise to date has been to a large degree anecdotal, the purpose of this paper is to offer a thorough review of the available evidence and arguments. In particular, the paper considers whether the present system of corporate governance operating in the UK, with its emphasis on market solutions and monitoring by non-executive directors, allows the goals of accountability and enterprise to be jointly achieved. The paper concludes that a far greater understanding of the links between governance mechanisms and their effects on accountability and enterprise is required, in order to ensure that measures to increase accountability do not have unforeseen effects on the enterprise activities of the corporation.

Directors' Ownership and the Performance of Small and Medium Sized Firms in the U.K

The primary purpose of this paper is to examine the relationship between firm performance and the proportion of shares owned by directors for a sample of small and medium sized companies in the U.K. The paper also examines, however, the impact of organisational form on firm performance. The results suggest that, in contrast to the majority of large firm studies on the subject, a curvilinear relationship is found to exist between firm performance and the percentage of equity held by the board of directors. The return on assets of firms is found to increase as director ownership increases up to a maximum at 68.2% of ownership, after which it then decreases as director ownership approaches 100% of equity. In addition, the results suggest that firms whose directors are more highly remunerated and who hold directorships in other companies are significantly more profitable. Furthermore, firms in which the owners perceive present management practices to be lacking in structure are found to have significantly lower performance.

Risk Disclosures on the Second Tier Markets of the London Stock Exchange

The identification, management and disclosure of risks have been the subject of recent legislation, directives and reporting standards issued across a number of international jurisdictions. To inform the disclosure debate, this paper provides a detailed analysis of the risk warning disclosures of initial public offering (IPO) companies and the factors that drive such disclosures. We find that risk disclosures of IPO companies contain a greater proportion of forward-looking information but a lower proportion of information on internal controls and risk management than the disclosures of listed companies. We find evidence that such disclosure has increased across time but that larger directors’ shareholdings are associated with a reduction in risk disclosure.

A strategic approach to the study of innovation in the financial services industry: the case of telephone banking

During the 1990s the introduction of new technology, and in particular of low cost delivery channels, has accelerated the pace ofinnovation taking place within the UKfinancial services industry and has created a need for amore strategic approach to the study ofinnovation within this industry. In this paper, the case study of telephone banking is used to describe the main aspects of strategies adopted by the first and second movers, when implementing this delivery dlannel. It shows that the successful innovator – First Direct – adopted the logic of ‘value-innovation’, whilst the second movers have followed the ‘conventional’ logic. In contrast with previous studies, the strategic approach applied in this case study also reveals that differentiation in the financial market place is not achieved with the implementation ofdistribution channels or just technology, but bringing to the market ‘unprecedented value’. Finally, the implications for the general theory of innovation in relation to financial services organisations are highlighted.