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This study looks at how executive compensation affects firm value and the extent to which this relationship is sensitive to managerial ownership and corporate governance factors. We use data from UK FTSE 100 firms for the period 2007–2012, generating a total of 578 firm‐year observations. Consistent with optimal compensation theory, we find that the managerial compensation –firm value is more sensitive to executives' ownership levels and other corporate governance indicators. Our results remain robust to alternative econometric models. We contribute to the literature on corporate governance and firm value. While the paper builds on the executive bonus compensation literature, it also furthers our understanding on the extent to which managerial ownership, institutional ownership, board size and non‐executive ownership matter in the executive bonus compensation—corporate value relationship with specific emphasis on UK FTSE 100 firms. Our second contribution is related to the moderating role of managerial (executive) ownership. We show that as executives residual interests go up, managers become more conscious of the firm's idiosyncratic risk, and hence lessen their aggressive investment and financing strategies culminating in lower firm value. [ABSTRACT FROM AUTHOR]

Purpose: This study aims to investigate the possible implications of compliance with corporate governance (CG) provisions, including board composition and ownership structures, on the firm's likelihood of falling into financial distress. Design/methodology/approach: The study applies a random-effects logistic regression model as a baseline analysis using a sample of 110 FTSE 350 manufacturing companies from 2014 to 2019. This technique is supported by conducting a two-stage Heckman regression model to overcome the potential existence of endogeneity problems. Findings: The empirical evidence suggests that board composition and ownership structure are heterogeneously associated with financial distress probabilities in that they might have either reduced or increased the financial distress of the sampled firms. Specifically, board independence, board gender diversity, audit committee independence and institutional ownership negatively influence the likelihood of financial distress. In contrast, and consistent with the expectations, ownership concentration is positively attributed to financial distress, while the board size, audit committee size and managerial ownership have insignificant impacts on financial distress. Originality/value: The study extends the existing body of knowledge by examining the collective effect of board characteristics and ownership structures on firms' financial distress likelihood among a sample of manufacturing firms within the FTSE 350 index post the 2008 global financial crisis and following the recent CG reforms in the UK during the study period from 2014 to 2019. [ABSTRACT FROM AUTHOR]

Motivated by the growing attention on climate change and the ethical role that board characteristics and ownership may play in reducing greenhouse gas (GHG) emissions, this paper investigates the relationship between institutional ownership and GHG emissions. Using an extensive dataset from the UK and the USA, we show that institutional ownership is associated with less GHG emissions – a one standard deviation increase in the proportion of institutional ownership reduces carbon emissions by 1.02 metric tons. Our findings are robust when using alternative measures, econometric specifications and several approaches to address endogeneity. Further, we find no evidence for a stronger effect in the UK compared with the USA, as expected from our discussion of the governance contexts in the two countries. We also test the possible channel (i.e. exit and selection) through which institutional investors affect GHG emissions. In a set of additional analyses, we show that litigation risk and board gender diversity moderate the relationship between institutional ownership and GHG emissions. Finally, we also document a positive effect of the stewardship codes on the relationship between institutional ownership and GHG emissions. Our findings make significant theoretical and regulatory contributions. [ABSTRACT FROM AUTHOR]

The current study examines the association between earnings quality (EQ) and investment efficiency (IE) using the conditional effect of legal origin. Further, we assess the influence of the institutional ownership (IOW) on the relationship between EQ and IE within different legal environments, using a sample of 22,446 firm-year observations from the US, the UK, Germany and Japan over the period of 2001–2018. In general, the results provide cross-country evidence that a higher EQ enhances IE. Further, the results indicate that higher EQ can mitigate overinvestment and underinvestment problems by ensuring that firms move toward their optimal level of investment. In addition, the findings reveal that a country's legal environment affects IE with EQ having a stronger association with IE in common law countries as compared to code law economies. In terms of the conditional role of IOW, the findings illustrate that the effect of IOW on the relationship between EQ and IE varies within different legal origins. The results are robust to alternative measures for the main variables examined. This study provides policy implications for investors, managers, regulators, and theorists about the role of the institutional settings on the relation between certain properties of EQ and IE. [ABSTRACT FROM AUTHOR]

The overall aim of this research is to identify the drivers of EM reduction, in order to enhance the transparency of the financial reporting process in the UK and the US contexts. This paper examines the moderating role of CEO compensation on the associations between earnings management and four factors (audit quality, institutional ownership, concentrated ownership and cash holdings). This study is a comparative analysis of the UK and the US-listed firms, between 2005 and 2016, to analyse if the moderating role of CEO compensation acts differently within the two contexts, as they both have different CEO roles and responsibilities on which different levels of compensation are granted. The study also analyses the impact of cash holdings on EM. This study reveals whether the incentive power of CEO compensation is effective, in line with the controlling power of other corporate governance mechanisms in restraining EM practices or not. After conducting the analysis, this study reveals that CEO compensation-as a moderator, doesn't play a significant role in restraining EM practices in the UK, since none of the formed joint effects proves to be significant, even though the joint effects are observed to have negative coefficients. However, the moderating role of CEO compensation is observed to be an effective strategy in restraining EM practices within the US context, in the presence of cash holdings. So even though the presence of cash-holdings by itself in US-listed firms is found to increase the participation of EM, the positive relation changes in the intervention of CEO compensation, which indicates that the distribution of CEO compensation, in the presence of cash, acts as an incentive for managers to actually work for the firms' best interests, and avoid using the firms' excess cash, leading to lower levels of EM. [ABSTRACT FROM AUTHOR]

We exploit the large rise in relative performance awards in the United Kingdom over the last two decades to investigate whether these contracts improve the alignment between CEO pay and firm performance. We first document that corporate governance appears to be stronger when institutional ownership is greater. Then, using hand-collected data from annual reports on explicit contracts, we show that (1) CEO pay still responds more to increases in the firms' stock performance than to decreases, and, importantly, this asymmetry is stronger when corporate governance is weak as measured by low institutional ownership; and (2) "pay for luck" persists as remuneration increases with random positive shocks, even when the CEO has equity awards that explicitly condition on firm performance relative to peer firms in the same sector. A major reason why relative performance contracts do not eliminate pay for luck is that CEOs who fail to meet the terms of their past performance awards are able to obtain more generous new equity rewards in the future in weakly governed firms. We show the mechanism operates both through the quantum of shares and the structure of new contracts. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong corporate governance. [ABSTRACT FROM AUTHOR]

This study develops a "comply or explain" index which captures compliance and quality of explanations given for non‐compliance with the corporate governance codes in UK and Germany. In particular, we explain, how compliance and quality of explanations provided in non‐compliance disclosures, and various other internal corporate governance mechanisms, affect the market valuation of firms in the two countries. A dynamic generalised method of moments (GMM) estimator is employed as the research technique for our analysis, which enabled us to control for the potential effects of endogeneity in our models. The findings of our content analysis suggest that firms exhibit significant differences in compliance, board independence and ownership structure in both countries. The "comply or explain" index is positively associated with the market valuation of UK firms suggesting that compliance and quality governance disclosure are value relevant in the UK. Institutional blockholders' ownership is, however, negatively associated with the market value of firms, which raises questions about the monitoring role of institutional shareholders in both countries. We argue that both compliance and explanations given for non‐compliance are equally important, as long as valid reasons and justifications for non‐compliance are provided by the reporting companies. These findings thus imply that the "comply or explain" principle is working well and that UK and German companies could benefit from the flexibility offered by this principle. With respect to the role of board size, board independence, ownership structure, and institutional ownership of firms, this study offers policy implications. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to examine the impact of conversion to REIT status by former listed property companies in the United Kingdom on the level of institutional ownership during the period of 2007–2016. Design/methodology/approach: This paper uses an event study framework to track the change in institutional ownership three years before and after a REIT conversion event. This event study approach circumvents the sample selection bias issue associated with the conversion event wherein the decision to convert to REIT is likely to be endogenous. Findings: Panel regression analysis reveals that changing to REIT status led to a 12.8 and 15.2% increase in institutional ownership and number of institutional investors, respectively. The first order of priority in institutional investors' investment in REIT shares is their preference for liquidity. Further analysis shows that institutional investors changed their preferences towards characteristics associated with systematic risk, firm age and liquidity after the conversion event by becoming less averse to firm-specific risk, placing more emphasis on firm age and less emphasis on systematic risk and liquidity. Practical implications: Overall, conversion to REIT status helps increase former property companies' investor base, which is in line with the regulator's aim to open up the property market to a wide range of investors through the introduction of a REIT regime. Findings from this paper also have policy implications for countries that are considering a REIT regime for their capital market and existing REIT regimes without a formal conversion mechanism. Originality/value: This paper offers, for the first time, evidence on 1) how conversion to REITs influences firms' institutional ownership and 2) the determinants of converted REITs' institutional ownership. [ABSTRACT FROM AUTHOR]

Total factor productivity represents a dimension of output that cannot be attributed to factors of production; it is unique to the firm, and central to its competitiveness. We posit that ownership structure plays a key role in productivity. However, ownership structure has an effect on productivity which changes with a firm's age. Ownership structure that is optimal for new firms may not be optimal for older firms. We here consider the impact of ownership structure as defined by shares of individuals' versus (broadly defined) institutional ownership. Our empirical counterpart draws on the UK company data for 2008-2017, obtained from the Orbis database. Our key explanatory variables are the joint share of the individual owners in equity and its square, but we also control concentration of ownership indices, along with a range of other firm-level characteristics. Applying fixed effects models along with instrumenting ownership with regional level variables, we found that new companies with majority individual owners and minority institutional owners outperform others. As firms age, however, these differences begin to disappear, with individual owners losing their control-related advantage. The results of the relative advantage of individual owners in the early stage is consistent with the property rights theory, which emphasises that residual control rights should remain with those whose investment is critical. It can be argued, however, that for whom the investment is critical changes as firm ages. Our managerial implications emphasise ownership competence in optimising ownership structure, which should evolve along the stages of the life-cycle of the firm. [ABSTRACT FROM AUTHOR]

This paper examines the possible effects of corporate governance (GC) on audit quality (AQ) among the FTSE 350 companies. Using a sample of 180 companies from 2012 to 2017 (i.e. 1080 firm-year observations) a binary logistic model has been employed to investigate the CG-AQ nexus. This analysis was supported by conducting a probit logistic model as a sensitivity analysis. Our findings are associative of a heterogeneous impact of CG on AQ post the implementation of the 2012 CG reforms in the UK. For example, although institutional ownership and management ownership can predict AQ, board independence, non-executive directors and audit committee are not attributed to AQ in the UK. This implies that corporate compliance with good CG practices has a limited impact on the decision to select a Big4 auditor in the UK. Despite the limitations of our study, we hope it can motivate further investigations in this area. [ABSTRACT FROM AUTHOR]

This paper describes different forms of ownership across countries and how these forms influence the way companies are governed. In most stock markets in the world, listed companies frequently have a controlling shareholder, usually a family. However, Japan, the UK, and to a lesser extent the US, are exceptions. In these three countries, ownership is frequently highly fragmented, where share stakes are held by different institutional owners, including asset managers, both active and passive, and by shareholder activists. The paper focuses in particular on the governance structure of different institutional shareholders, how they engage with target firms, and their effectiveness. The paper concludes with recommendations for regulators to enhance different forms of ownership. [ABSTRACT FROM AUTHOR]

Using a sample of UK firms, we find that institutional block-holding is negatively associated with directors' ownership and is positively associated with board composition, suggesting that institutional block-holders regard directors' ownership and board composition as substitute and complementary control mechanisms, respectively. We also show that UK institutional block-holders prefer smaller firms and firms with a shorter listing history. The presence of institutional block-holders is associated with smaller boards and lower trading liquidity. Finally, our results indicate that the investment preference of UK institutional block-holders varies with the level of their shareholding. [ABSTRACT FROM AUTHOR]

Empirical This study examines the influence of firms' ownership structure on corporate reputation. Using archival data from a panel of firms in Spain for 2000-2007, we found that ownership concentration in the hands of the largest shareholder erodes corporate reputation, whereas contestability of the main shareholder's power enhances it. Insider ownership shows a non-linear relationship with corporate reputation, with lower corporate reputation at low and very high levels of insider ownership. Finally, if the largest shareholder is either a pressure-resistant or a pressure-sensitive institutional investor, as opposed to other types of largest shareholder, corporate reputation is lower. This last finding markedly differentiates our sample of firms in Spain, a civil law country, from firms in common law countries such as the US and the UK, where studies have found a positive relationship between institutional investors and corporate reputation. Drawing on signaling and agency theories, our paper is, to the best of our knowledge, the first to analyze the influence of ownership structure on corporate reputation in civil law countries. This study suggests that managers and directors should recognize how each characteristic of ownership structure influences the expectations of stakeholders. Low levels of ownership concentration in the hands of the largest shareholders, low differences in ownership concentration between first and second largest shareholders, and moderate levels of insider ownership are positive signals that should be communicated to foster corporate reputation. High levels of ownership concentration in the hands of the largest shareholders or high differences in ownership concentration between first and second largest shareholders impair corporate reputation and should be compensated by introducing corporate governance mechanisms that favor corporate reputation, such as increasing the number of independent directors or avoiding CEO duality. [ABSTRACT FROM AUTHOR]

The article focuses on a research paper which investigates how the turnover performance relation depends on outside directors and institutional ownership concentration. It also explores the role of accounting and stock-based performance measures in the process of dismissing chief executive officers (CEO). The research was carried out using probit analysis with an unbalanced panel of the top 460 Great Britain listed companies from 1990 to 1998. The research found no evidence of effective board monitoring whereas evidence of institutional shareholder activism was found. It also found that when institutional concentration is high, the turnover-performance link is more negative in relation to stock returns but less negative in relation to accounting performance.

The article focuses on a new test, consisting of an event study on directors' trades, which examines whether institutional shareholders in Great Britain monitor their investee firms. It presents a comparison of the ownership and control of firms in Great Britain and in continental Europe. The institutional investors' monitoring of investee firms and other shareholders is discussed.