Compliance and impact of corporate governance best practice code on the financial performance of New Zealand listed companies : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Business and Admnistration at Massey University, Auckland campus, New Zealand
Loading...
Date
2009
DOI
Open Access Location
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Massey University
Rights
The Author
Abstract
The corporate governance best practice code (Code) of the New Zealand Exchange
(NZX) came into effect on October 29, 2003. However, so far there is no systematic
study of compliance with and impact of NZX Code on the performance of NZX
companies. This study attempts to provide some answers to the perceived knowledge
gap. The NZX Code recommends certain governance mechanisms to enhance
corporate performance. The mechanisms analysed in this study are the percentage of
independent directors, duality, presence of board subcommittees (audit,
remuneration, and nomination), and the performance evaluation of board and
individual directors. This thesis examines the possible relationship between
recommended governance structures and the performance of NZX companies for the
years 2003 (pre-Code) and 2007 (post Code), using data from the same 89
companies for each year. Although the number of companies adopting the NZX
structures has increased, the rate of full compliance of the Code remains
disappointingly low, rising from 5.6% in 2003 to just 22.5% in 2007. Probably due
to the small sample size relative to the number of independent variables, and the
problem of co-linearity, the multiple linear regression results do not seem to be
conclusive and may be unreliable as the basis to form any formal statistical
inference. However, treating the 89 companies as the whole population (89 out of
90), and using a simpler and more descriptive statistical tool to analyse the impact of
individual independent variables on firm performance, the 2007 results show a
consistent pattern of a positive relationship between Code compliance and firm
performance, assuming all other factors being constant. This positive relationship is
further reinforced by dividing the population into the various industry groupings as
classified by the NZX, which also results in a consistent pattern of companies which
comply fully with the Code structures financially outperforming companies that only
partially comply with the Code during 2007. Surprisingly, listed companies adhering
to the Chairman/CEO dual role do not seem to have impacted negatively on firm
performance, contrary to agency theory expectation.
Description
Keywords
NZX Code, New Zealand stock exchange, Performance evaluation