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JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Corporate Governance Accountability, Enterprise and International Comparisons Edited by Kevin Keasey Steve Thompson and Mike Wright iii JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 iii JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Corporate Governance i JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 ii JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Corporate Governance Accountability, Enterprise and International Comparisons Edited by Kevin Keasey Steve Thompson and Mike Wright iii JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Copyright(cid:1)C 2005 JohnWiley&SonsLtd,TheAtrium,SouthernGate,Chichester, WestSussexPO198SQ,England Telephone (+44)1243779777 Except Chapter9:GovernanceandStrategicLeadershipinEntrepreneurialFirmsbyC.Daily,P.McDougall,J.Covinand D.DaltonfromJournalofManagement,Vol.28,Issue3,June,pp.387–412,2002,reprintedwithpermissionfrom Elsevier. Chapter11:ExplainingWesternSecuritiesMarketsbyM.RoefromCorporateGovernanceandFirmOrganization, editedbyA.Grandori(2004),reprintedbypermissionofOxfordUniversityPress. Chapter12:InternationalCorporateGovernancebyD.K.DenisandJ.J.McConnellfromJournalofFinancialand QuantitativeAnalysis,38,1,March2003,reprintedwithpermissionfromJFQA. 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LibraryofCongressCataloguing-in-PublicationData Corporategovernance:accountability,enterpriseandinternationalcomparisons/[editedby]KevinKeasey, SteveThompson,andMikeWright. p. cm. Includesbibliographicalreferencesandindex. ISBN0-470-87030-3(Cloth:alk.paper) 1.Corporategovernance—Cross-culturalstudies. 2.Corporations—Finance—Cross-culturalstudies. I.Keasey,Kevin. II.Thompson,Steve(R.S.) III.Wright,Mike,1952– HD2741.C775 2005 338.6—dc22 2004023807 BritishLibraryCataloguinginPublicationData AcataloguerecordforthisbookisavailablefromtheBritishLibrary ISBN0-470-87030-3 Typesetin10/12ptTimesandHelveticabyTechBooks,NewDelhi,India PrintedandboundinGreatBritainbyAntonyRoweLtd,Chippenham,Wiltshire Thisbookisprintedonacid-freepaperresponsiblymanufacturedfromsustainableforestryinwhichatleasttwotrees areplantedforeachoneusedforpaperproduction. iv JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Contents Aboutthecontributors xi 1 Introduction 1 KevinKeasey,SteveThompsonandMikeWright Introduction 1 Alternativeperspectivesoncorporategovernance 2 Backgroundtocorporategovernancereform 4 Governancereforms:theearlydays 5 Newperspectivesfromthe1990s 7 Thevolume’scontents 8 Notes 17 References 18 2 TheDevelopmentofCorporateGovernanceCodesintheUK 21 KevinKeasey,HelenShortandMikeWright Introduction 21 CorporategovernanceintheUK–deﬁnitionsandframework 22 Theevolutionofpolicyrecommendations–fromCadburytoHampel 23 Theevolutionofgovernancepolicy–fromCombinedCodeItoCombinedCodeII 34 Overviewofpolicyevolution 40 Conclusion 42 Notes 42 References 42 3 FinancialStructureandCorporateGovernance 45 RobertWatsonandMahmoudEzzamel Introduction 45 Capitalstructureandﬁnancialrisk 48 Doescapitalstructurematter? 50 Theagencycostsofdebt 51 Employeesasresidualclaimants 56 Notes 58 References 59 v JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Contents 4 InstitutionalShareholdersandCorporateGovernanceintheUK 61 HelenShortandKevinKeasey Introduction 61 InstitutionalshareholdingsintheUK 63 Generaloverviewoftheobjectivesandincentivesofinstitutions 65 Thewillingnessandabilityofinstitutionstointerveneinthegovernanceof corporations 70 Methodsofintervention 80 Governancebyinstitutionalshareholders:empiricalevidence 84 Summaryandconclusions 90 Notes 92 References 93 5 BoardsofDirectorsandtheRoleofNon-executiveDirectorsinthe GovernanceofCorporations 97 MahmoudEzzamelandRobertWatson Introduction 97 Thecorporateform,governanceandtheboardofdirectors 99 TheUK’sgovernancebydisclosure 104 Conclusions 112 Notes 112 References 113 6 ExecutivePayandUKCorporateGovernance 117 AlistairBruceandTrevorBuck Introduction 117 ExecutivepayandcorporategovernanceintheUK:anoverview 119 Theempiricalanalysisofexecutivepay 120 ExecutivepayevolutionintheUK 123 Performanceindicator(s) 128 FurtherdiscretionaryelementsinLTIPdesign 131 Mixofremunerationcomponents 132 Disclosure 132 Conclusions 133 References 134 7 CompensationCommitteesandExecutiveCompensation: EvidencefromPubliclyTradedUKFirms 137 RocioBonetandMartinJ.Conyon Introduction 137 Compensationcommitteesandexecutivepay 138 Priorliterature 140 Newdataandresults 144 Discussionandconclusion 149 vi JWBK003-FM JWBK003-Keasey January7,2005 18:14 CharCount=0 Contents Notes 151 References 153 8 TheGovernanceRoleofTakeovers 155 NoelO’SullivanandPaulineWong Introduction 155 Takeoversandcompanyperformance 156 Thelikelihoodoftakeoversuccess 158 Post-acquisitionperformance 164 Managementturnoversubsequenttotakeover 171 Theconsequencesoftakeoverfailure 172 Conclusions 174 References 176 9 GovernanceandStrategicLeadershipinEntrepreneurialFirms 183 CatherineM.Dalton,PatriciaP.McDougall,JeffreyG.CovinandDanR.Dalton Introduction 183 Governanceandstrategicleadershipdomatter 185 CEOs/Founders 186 CEOduality 190 Topmanagementteams 191 Boardsofdirectors 193 Venturecapitalists 194 Discussion:anopportunitylost 196 Conclusion 199 References 200 10 CorporateGovernance:TheRoleofVentureCapitalistsandBuy-outs 207 MikeWright,SteveThompsonandAndrewBurrows Introduction 207 Theoreticalissues 208 Empiricalevidence 215 Conclusions 227 Notes 227 References 228 11 ExplainingWesternSecuritiesMarkets 235 MarkJ.Roe Introduction 235 Theargument:corporatelawaspropellingdiffuseownership 237 Corporatelaw’slimits 239 Data:politicalvariablesasthestrongestpredictorofownershipseparation 243 Conclusion:politicsandcorporatelawasexplanationsforsecuritiesmarkets 246 Notes 247 References 248 vii