The Development of a Corporate Governance Index for UK Insurance Firms, A Necessary Panacea?
Authors: Abdoush, T., Wolfe, S. and Marshall, A.
Start date: 6 September 2016
Journal: BAM2016 Conference Proceedings
The objective of this study is to assess whether our new UK Corporate Governance Index (UKCGI) indicates the association, if any, between governance structure and firm performance in the UK insurance companies, both listed and non-listed, and whether selling life, non-life or both products, during the period 2004-2013. The sample starts in 2004 after the Financial Reporting Council (FRC) has released the UK corporate governance code ‘The Combined Code’ in 2003 and become responsible for reviewing this code regularly, and ends in 2013 since it is the most recent year in which data was available at the time of data collection. This study has also been the first study, to the best of the researcher’s knowledge, which has investigated the mediating role of agency costs on the relationship between corporate governance and firm performance of both listed and non-listed insurance companies in the UK. In other words, this study will try to answer the following research question: [How Sensitive is Firm Performance to Corporate Governance Rankings of Insurance Companies in the UK, produced using the New UK Corporate Governance Index (UKCGI), and do agency costs mediate this governance-performance relationship?]. A mediation analysis has been then run between corporate governance index, agency costs and firm performance in order to explore any relationship between this index or any of its five sub-indices and firm performance, and whether agency costs mediate this association. The main findings has indicated a significant association between corporate governance index (UKCGI) and firm performance. The results have also confirmed that governance-performance relationship is fully mediated by agency costs suggesting that corporate governance does help to reduce agency costs which is in turn lead to improve firm performance.