THE RELATIONSHIP BETWEEN BOARD STRUCTURE AND FIRM PERFORMANCE IN THE UK

This study examines the relationship between board structure with firm performance in the UK by employing data from 250 publicly traded firms. Consistent with general findings from the USA, the tests as a whole do not discern a significant link between board structure (director affiliation and ownership, chairman affiliation, and committee composition) with firm performance. These results are robust to alternative measures of performance, outlier definitions, various model specifications, and statistical estimation techniques. The most significant determinants of corporate performance are the level of R&D spending and current operating performance. These results are consistent with governance needs varying across firms, and contrast the notion that uniform board structures should be mandated.     

FIRM CHARACTERISTICS AND THE PRESENCE OF EVENT RISK COVENANTS IN BOND INDENTURES

Event risk covenants (ERCs) became popular as a bondholder protection measure during the height of restructuring activities in the 1980s. We investigate the empirical relation between firm characteristics and the likelihood of ERCs in bond indentures. In particular, we examine whether a firm's agency costs of debt, financial distress costs, and/or takeover potential influence its decision to include ERCs. Employing bonds with and without ERCs issued during 1986–90, we provide evidence that the likelihood a firm will include ERCs is positively related to the firm's agency costs of debt and to its potential for takeover. The results, however, do not support the financial distress costs hypothesis.     

SMALL FIRM AND VALUE EFFECTS IN THE CANADIAN STOCK MARKET

We examine the relation among average returns, market beta, firm size, and book-to-market value for Canadian stocks during 1975–92. We document a negative relation between average return and the market capitalization of firms, but find no relation between average return and market beta. While the small firm effect is significant during a period of reduced capital gains tax, it is noticeably lower than during the period leading up to the change. We find that average returns are positively related to book-to-market value especially during the period of lower capital gains tax.     

SECURITY ANALYST FORECASTS AND THE EARNINGS YIELD ANOMALY

This paper tests for existence of a positive relationship between the earnings yield anomaly and the earnings forecast error (EFE) effect. The earnings yield anomaly recognizes that stocks with low price-earnings ratios produce positive risk-adjusted returns. The EFE effect refers to the positively related stock price response to differences in reported earnings per share (EPS) and the EPS previously forecast by security research analysts. The within group method is used in order to remove the effect of the EFE. Empirical research findings based on 1979-1988 data, indicate that the EFE effect does not account for the earnings yield anomaly.     

THE NEGLECTED AND SMALL FIRM EFFECTS

This paper addresses the empirical question of whether the differential attention which companies receive affects the capital asset pricing process. The degree of attention was measured by research concentration rankings based on the number of analysts regularly following the firm's securities. The results suggest: (i) that there is a “neglected firm effect” in terms of superior performance for less researched companies and (ii) that the neglected firm effect persists over and above the small firm effect; namely, the excess returns are not fully attributable to size. The ex-post capital asset pricing model is unable to account for the differences in return across security research ranking. Several possible explanations for the results are considered but not tested.     

FIRM RESOURCES,QUALITY SIGNALS AND THE DETERMINANTS OF CORPORATE ENVIRONMENTAL REPUTATION: SOME UK EVIDENCE

Using the example of the creation of corporate environmental reputation, the article offers a theoretical extension of the resource-based view of the firm to include quality signalling via the channel of accounting disclosure. The proposed framework is then tested via an empirical survey into the relationship between environmental disclosure and environmental reputation. The results suggest that implementation, monitoring and disclosure of environmental policies and their disclosure in annual reports contribute significantly to the creation of environmental reputation. Diverse institutional share ownership and low systematic risk are also associated with positive environmental reputation. Prior financial performance has no impact and there is no evidence that environmental reputation is created by a financial halo effect or by the availability of slack financial resources.