Does Corporate Governance Affect the Performance of Insurance Firms in the UK?
Authors: Abdoush, T., Wolfe, S. and Marshall, A.
Start date: 6 September 2016
Journal: BAM2016 Conference Proceedings
The aim of this paper is to examine the impact of corporate governance on firm performance in the UK insurance industry during the period 2004-2013. The sample starts in 2004 after the Financial Reporting Council (FRC) released the UK corporate governance code ‘The Combined Code’ in 2003, and ends in 2013 since it is the most recent year in which data was available at the time of data collection. Panel data used in this study is hand-collected mainly from the annual reports of 67 UK insurance firms, consists of both listed and non-listed companies. The core contribution of this research is that two new insurance-related measures, revenue growth and adjusted combined ratio, have been used alongside the return on assets (ROA). The main findings are that corporate governance in UK insurance companies have mixed performance effects. More specifically, higher proportion of independent NEDs with short tenure length, higher board ownership and block shareholders’ rations help to improve firm performance. Moreover, most corporate governance arrangements are more effective in driving firm performance within life and composite insurance companies, while board remuneration and ownership are effective only in non-life insurance companies. On the other hand, it is found that some corporate governance arrangements, such as CEO quality, Independent NED Ratio, and board remuneration, impact firm performance during both the global financial crisis of 2007-09 and the Eurozone crisis of 2010-12. However, board ownership has enhanced performance during the financial crisis, while its effect has begun to take place again after the Eurozone crisis.