Regulation: The market for corporate control and corporate governance

This study examines the effects of regulation and a contested market for corporate control on the internal mechanisms of corporate governance. The study focus is on two sectors, manufacturing and banking, due to their differences in the governance environment. In the United Kingdom for the sample period used in this study, manufacturing was characterized by a contested market for corporate control with little or no regulatory interference. In banking on the other hand, takeovers, hostile or otherwise, were absent and ownership changes and board appointments were supervised by the regulator—the Bank of England. The findings of the panel data estimates show that, unlike in the manufacturing sector, disciplinary top management turnover in banks was not related to share price performance. Outside directors were significantly less effective in disciplining top management in banks than in manufacturing firms.