"Declaration I (xxx), declare that the MBA entitledto(xxxxxxx)in (XXX) is not more than(.XXX.) words in length, exclusive of tables, figures, appendices, references andfootnotes. This thesis contains no material that has been accepted for the awardof any other degree of diploma in any university or institution. To the best ofmy knowledge, this thesis contains no material previously published or writtenby another person, except where due reference has been given.Name of the studentDate 1 AcknowledgementThis thesis would not have been possible without the support of numerous people,whom I wish to acknowledge. First of all my deepest gratitude to my supervisorsProfessor (XXX) for his dedication, invaluable guidance, scholarly support andcommitment of time throughout this process; without this the thesis would nothave been a reality. I am also thankful to Professor(YYYY)who is my immediate supervisor as thehead of Research Program, for inspiring me to complete thisdissertationand forproviding me with unlimited academic support and the opportunity to advance mycareer in corporate governance. My sincere thanks other academician and industry expert, and my seniorsforproviding me with the necessary information with regards to implementation of thecorporate governance code in UK, the FTSE 100 for providing me with access toannual reports, (zzz.) for his advice on statistical analysis and(bbb)for his helpwith formatting. My appreciation goes to my late uncle(xxx) who encouraged me and gave memoral support to pursue my education in UK, and my late oldest cousin, (CCC)whose words inspired me to take a further step in my postgraduate studies leadingto writing this thesis. I could not have completed this journey without the love and friendship of myfamily and friends. Thanks to my sister(xxx), my brother(xxx), my nieces(xxx),my grand nephew William and all my friends. Finally, this thesis is dedicated to my beloved parents (xxx), for her love, patienceand encouragement during this long journey throughout my life and for providingme with an excellent education. 2 Abstract In any organisation in the developed economy the corporate governance isconsidered to be a significant factor for the growth prospects. The risk of theinvestor reduced to a significant extent if there is a presence of the goodgovernance. This attract the capital investment and at the same time improving theperformance of the organisation. Depending on the nature of the market forces thenature of corporate governance varies to a considerable extent. The basic aim of the study was to examine the impact of the good corporategovernance on the financial performance of the firm in UK. Both the political andeconomic stability has forced to execute the code “best practices” in the FTSE 100listed companies. During the tenure 2011-13, it had been observed that this hasimproved the overall performance of the stock market.During the literature review researcher has focused on various theories. Thesetheories have focused more on the separation of the ownership and control. Mixedresult has come from the corporate governance practices and firm performance.Multiple parameters were examined like board size, board structure, firm size,board composition, board committee, ROA, ROE, sales growth , leverage ratio etc.Even few of the literature focused on the leadership qualities, number ofindependent members, audit, and remuneration and nomination committee.Almost 50 firms were chosen from the FTSE 100 and panel data (5 explanatoryvariables over a period of three years) were assessed. The most updated version ofSPSS 22 was used to measure the descriptive statistics, spearman correlationcoefficient and analysis of variance.The study attempt to investigate the relationship between the corporategovernance and the performance of 50 firms selected from FTSE100. Theperformance of the corporate governance is measured by Tobin Q, whereas fewindependent variables (explanatory variables) are considered to measure theperformance of the firm. The ROA (return on asset), ROE (Return on equity), Firm3 size, leverage ratio of the firm, and growth are considered as the explanatoryvariables. The better and positive value of the regressor co efficient indicates thatthe corporate governance will have a positive impact on the performance of thefirm. The result signifies that the ROA, leverage ratio and the sales growth havepositive relationship with the corporate governance (Tobin q).4 ContentsChapter-1 .................................................................................................. 10Introduction ................................................................................................ 101. Background of the study ........................................................................... 101.1 Definition .............................................................................................. 101.2 Problem Statement ................................................................................. 111.3 Corporate government practices ............................................................... 121.3.1Board structure .................................................................................... 121.3.2 Leadership structure of the board .......................................................... 131.3.3. Board Composition .............................................................................. 131.3.4 Board committee ................................................................................. 141.4 Research rationale .................................................................................. 141.5 Overall Research Aim and Individual Research Objectives ............................ 151.6 Research questions ................................................................................. 161.7 Conceptual frame work ........................................................................... 161.8 Contribution and significance of the study .................................................. 171.9 Structure of the research ......................................................................... 17Chapter-2 .................................................................................................. 19Literature Review ......................................................................................... 192.1 Background of the Principles of corporate Governance ................................ 192.2 Benefits of the corporate Governance ........................................................ 192.3 Theoretical background of Corporate Governance ....................................... 202.3.1 Perspectives of the Agency theory ......................................................... 202.3.2 Perspective of the Stewardship Theory ................................................... 212.3.3 Perspective on the resource dependence theory ...................................... 212.3.4 Perspective on Social Contract Theory .................................................... 225 2.3.5 Perspective of the Legitimacy Theory ..................................................... 222.4 Structure of the board ............................................................................. 232.4.1 Leadership framework of the board ........................................................ 232.4.2 Composition of the board ...................................................................... 242.4.3 Committee members of the board .......................................................... 252.6 Performance of the firm .......................................................................... 262.6.1. Tobin Q ............................................................................................. 262.6.2 Return on Assets ................................................................................. 272.6.3 Return on Equity.................................................................................. 272.13 Firm- specific characteristics and governance variables ............................. 272.11 Corporate Governance, Capital Markets and Firm Performance ................... 282.13. The size of the firm .............................................................................. 282.14 Size of the board .................................................................................. 282.14. The number of Independent directors ..................................................... 292.15. Leverage and firm performance ............................................................. 302.16 Statistical Model used to measure the impact of corporate governance ........ 312.14 Summary ............................................................................................ 34Chapter-3 .................................................................................................. 36Research methodology ................................................................................. 363.1 Basic research problem ........................................................................... 363.2 Model .................................................................................................... 385.2 Research design ..................................................................................... 395.2.1Data type ............................................................................................ 395.2.2 Sampling method ................................................................................ 395.2.3 Sample size ........................................................................................ 405.2.4 Data collection process ......................................................................... 416 Chapter-4 .................................................................................................. 41Result and Discussion ................................................................................... 414. Introduction ............................................................................................ 414.1 Descriptive statistics ............................................................................... 424.2Inferential Statistics ................................................................................. 464.2.1 Pearson correlation .............................................................................. 474.2.2 Regression analysis .............................................................................. 514.2.3 Analysis of variance ............................................................................. 514.3 Discussion ............................................................................................. 52Chapter-5 .................................................................................................. 59Conclusion .................................................................................................. 595. Introduction ............................................................................................ 595.1Objective validation ................................................................................. 595.2 Limitation .............................................................................................. 635.3 Future implication of the research ............................................................. 65Chapter-6 .................................................................................................. 66Reflective view ............................................................................................ 661. Summary ................................................................................................ 662. Thinking in a challenging manner ............................................................... 663. Conclusion ............................................................................................... 67Reference ................................................................................................... 69Appendix-1 ................................................................................................. 75Apppendix-2 Mother sheet of all data of the 50 companies ................................ 797 List of table Table no Pg noTable-1 Earlier research work details 25Table-2 Research work over corporate 26governance and firms performanceTable -3 Research objectives, research 30question and HypothesisTable -4 Descriptive Statistics 60Table -5 Pearson correlation 60Table -6 Correlations and Tolerance 62indexTable -7 Model Summary 62Table-8Beta Coefficients 63Table -9 ANOVAs 63Table -10 Validation of the hypothesis 45List of Figure Fig No Pg noFig-1 Means of ROA vs Tobin Q 378 Fig-2 Mean of ROE vs Tobin q 37Fig -3 Mean of Firm? size vs Tobin Q 38Fig -4 Mean of Leverage vs Tobin Q 39Fig -5 Mean of Leverage vs Tobin Q 40Fig -6 Confidence ellipse at 95% interval 40(negative correlation)Fig -7 Confidence ellipse at 95% interval 43(imperfect positive correlation)Fig -8 Confidence ellipse at 95% interval 44(imperfect positive correlation)--xxxx----9 Chapter-1Introduction1. Background of the studyIn the twenty first century corporate governance is considered to be a very populartopic and considered to be one of the most significant which is widely studied andimproved by the researcher to increase the performance of the firm. After thesignificant level of financial crisis in the world market in the year of 1998, theinvestor, board of governors and other stakeholders of the organisation realised theimportance establishing the corporate governance in the market. According toAbeysekera (2001, p 254), “the corporate governance can be defined as the systemwhich allows the companies to get directed and controlled.”This includes the board of director, composition of the board and its relationshipwith the firm?s performance. This is particular method process and proceduresestablished by the management who are responsible for its governance.1.1 Definition The directors are responsible for the effective and efficient functioning of theorganisation and make sure so that the organisation goal is achieved. Abdullah(2004) described that the corporate government is a practice that delivers thestructure which possibly assist to define the strategy of the organisation forachieving its goal. This process helps in monitoring the performance of theorganisation.Research indicates that director of the company are not only the manager of theown money but they are the manager and executioner and planner of the peopleown money. This is expected that should watch with adequate care about the stakeholder?s investment. This is a practice that helps and encourages the managementwho has the tendency to pursue individual benefits to make the decision formaximizing the shareholder?s value (Harmilalin and Weisbach, 2003).10 The competitiveness of the organisation is largely depends on the effectiveimplementation of the corporate governance process where each and director fulfilltheir individual roles and responsibilities effectively. In the developing anddeveloped economy the organisation belongs to economic co operation normallyfamous for practicing the corporate governance. These are the countries wheremost of the organisation is practicing corporate governance with adequate mobility.Progressive economy of the world developed countries; mostly the organisation hasexecuted the corporate governance with ease.In the present case we haveconsidered 50 organisations.Both the form internal and external mechanism plays a vital role while forming thecorporate governance. Adams andMehran (2005) pointed out that internal andexternal mechanism are the two different kind of mechanismthat always try tosolve the conflictamong the owners, management of the organisation, and largeand small share holders. An external mechanism is formed by certain legal systemthat always functions in protecting the share holder?s interest and marketcompetition etc. On the other hand the internal mechanism constitute of the boardof directors, top management team. The role of CEO within the organisation ismultifaceted. Therefore most important mechanism of the corporate governanceand board of directors? effective functioning style is the main discussion area of theday (Abhayawansa, 2008).1.2 Problem StatementThere are different studies which had illustrated the impact of the inefficientgovernance on the performance of the firm. Sometime this has happened due togender in equality, inappropriate decision making skill, closure of information. Oneof the key important roles of the corporate governance can be explained by thehelp of agency theory; this theory supports the dual role of CEO. But on the otherhand the stewardship theory illustrated that the role of CEO is multifaceted. Bothshare holder?s interest and interest of the board of directors are influenced by theCEO?s opinion. Therefore there is a dilemma from the CEO„s perspective whichpathway would be appropriate to deliver for the desired performance of the firm.Beside there are several organisation failures in twenty century including Enron,11 WorldCom have initiated the need of corporate governance reforms. More attentionwas delivered and paid in the past few years while monitoring the roles of theboards. There are a host of factors which determines the efficiency andeffectiveness of the board of directors. The experience and qualification of theboard members, their possible involvement in the multiple dictatorship, their stakeholding position and type of remuneration all are involved within the effectivecorporate governance (Armstrong, and Sweeney, 2002).1.3 Corporate government practicesAs the research is based on the corporate governance practices in this study, somore discussion is required to illustrate various important aspect of the corporategovernance and its interrelationship with the firm?s performance. Agrawal andKnoebe (2009) pointed out that in general corporate governance has certainimplication in the with the growth prospects on any economy. Appropriatecorporate governance reduce the growth prospects of the economy as this reducesthe risk factor for the investorenhance the investment and improves theperformanceof the different companies (Aguilera et al., 2007). In UK the corporategovernance ensure the corporate accountability, which enhance the both thereliability and quality of the public finance information. These on the other handenhance the integrity of the capital market and increase the investor confidence(Ariyabandu and Hulangamuwa, 2002).1.3.1 Board structure Mostly the organisation in UK strategic outcome is completely changes in thelegal, political and economic environment, therefore any specific corporategovernance structure for a particular business practices is difficult to define.Alawattage and Wickramasinghe (2004) emphasised that board structure is animportant part of the corporate governance mechanism. This help to improve theperformance of the firm.These include the roles of Chief Executive Officer (CEO)and Chairman, non-executive director?s board committees. As the importance of theboard structure is directly related to the performance of the firm therefore it isimperative to discuss it in details.12 1.3.2 Leadership structure of the board The important issues that first need to be discussed on the corporate governancein the UK based firm are the diversified role separation and identification of a CEOfrom that of a chairman in the company. Anderson and Frankle (2010) describedthat if both the roles monitoring, implementation and formulation of the strategyis imposed on single individual (dual leadership concept) then automatically theleadership outcome will severely impaired and affected.Moreover the combined leadership delivers much power to an individual who failto take appropriate strategic decision that can increase the share holder?s wealthand firm?s value.On the other hand Alchian and Demsetz (2005) argued while a single per son inthe charge of both the responsibilities, most likely that the favourable decisioncomes faster provided the person is well aware about the techniques ofperformance improvement. Ariyabandu and Hulangamuwa (2002) discussed that any kind of evidencewhich is related with the company performance and board leadership structureare interrelated. Armstrong and Sweeney (2002) supported in the separateleadership structure most of the UK based firm outperform while it is measuredon the return on equity, ROI (Return on investment) and profit margins. At thesame time Barnhart et al. (2004) argued that there is hardly any evidence onthe relationship between the good governance, leadership structure and financialperformance of the firm. Both the independent and combined leadership of theboard are not at all related to the performance of the firm.1.3.3. Board Composition The composition of the board structure plays an important role in corporategovernance. The effective board is comprised of greater proportion of outsidedirectors which play a significant role in the firm?s performance. Agency theorydisclose the fact that non executive director of the firm able to deliver betterquality performance as they are completely in dependent from the form?smanagement. Alternatively stewardship theory implies that every manager is13 good stewards of the corporation and always works to attain high level ofcorporate profits and share holder return.Baxt andStapledon (2009) pointed out that a firms which possess a highernumber of outside director on the board always deliver better return on equityrather than if it is comprised of a boardwith lot many inside directors. Bartlettet al. (2007) explained that outside directors of the board are associated withthe net profitability especially in the UK based firm.Baysinger and Butler (2005) contradict and argued the perspective of thestewardship theory is more consistent and found to have positive and significantrelationship between the proportion of I side director and return to the investors.There is large body of research is present which is found have a relationshipbetween the composition of the board of directors and firm?s performance.1.3.4 Board committeeIn most of the UK based organisation to reduce the conflict between theshareholders and senior management, organisation now days has formed aboard committee. As mostly the oversight function of the board are carried outprimarily by the board committee. Beasley (2006) opined that there is fewspecific function of the board that is proposed to be handled by thesubcommittee which focuses on the specific aspect of the corporate governance.These are the issue sometimes raised problem. Berle and Means (2009)explained that issues pertaining to the financial reporting, remuneration of boardand senior management, and appointments to the board. Some the researcherhas found in UK the study related with the board committee and firm?sperformance is somehow limited in number (Baysinger and Hoskisson, 2010).1.4 Research rationale Both the European and Asian continent special attention was focused on differentcases of financial crisis which is perceived to be noted due to certain corporatescandals. Different academician, financial experts and regulatory bodies supportedthe fact that diversity in the decision making policy is important and naturalphenomena for any firms. This helps to improve the well planned move and14 supervisory role of the board members which reduce the chances of corporatefailure. Concentration of women in few of the organisation boards are known tocreate another gender related problem in most of the countries. United Kingdomas country is falling under it (Berman et al., 2009).The basic purpose of the research is to identify if there is positive relationshipexist between the corporate governance and firms financial performance ( withinFTSE 100)The earlier study has reveled in the other countries and sub continentthere is positive relationship exist between the good governance and financialperformance of the firm. But in UK perspective this has yet to get proved on alarge scale.According to the UK Corporate Governance Governance Code (“the UK Code”), thecorporate governance defines as the systems which enterprises are directed andcontrolled (FRC, 2012). However, an essential issue for a company is about “whois responsible for the governance?” “The UK Code” also define that the boardof directors are responsible for the governance of their companies, which isresponsible for the policies and strategic in order to improve the performance ofthe company efficiently (FRC, 2012). Obviously, the Board of Directors is the keydecision-making body in companies (Iskander, et al., 2000; Banks, 2004; Tricker,2012; Coyle, 2012; Pugliese, et al., 2014).This particular study attempt toestablish the positive impact of the good governance on the financial performanceof the firm.1.5 Overall Research Aim and Individual Research ObjectivesThe overall aims of this research is used to use corporate governance theory todiscuss the impact of board of directors, include how to make the maximized returnprofits for shareholders based on the researches of 25UK firms which listed on theFTSE 100 Index of London Stock Exchange. Specifically, within the content ofmaster?s level individually, the objectives of this research are to. The objective ofthis study is to assess the impact of the presence of good governance on the firm?sperformance. The firm value will be measured using approximation of Tobin?s Q.15 "