Directors' Duties, Corporate Governance and International Financial Crises

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ABSTRACT

Currently economists are heavily engrossed in discussions on corporate governance as a result of the recent financial crisis. In terms of recent financial crisis, we should consider whether weak corporate governance is to blame for the failure of Wall Street Financial companies and even extends to a worldwide collapse. It is considered that corporate governance mechanisms have complicated internal and external systems from previous studies. The operation of firms and even the whole economic environment is influenced by corporate governance to some extent or other. The objective of this dissertation is to figure out some key factors within both external and internal corporate governance mechanisms and to try to find how the role of board of directors during times of financial crisis.

Table of Contents

ABSTRACTii

CHAPTER 1: INTRODUCTION1

Background1

Research Aim and Objectives4

Research Questions5

CHAPTER 2: LITERATURE REVIEW6

Corporate Governance6

Role Played By Directors7

Board Size9

Performance Of Board Structure9

CHAPTER 3: METHODOLOGY12

Research Method12

Research Design12

Literature Search13

Sample13

Data Collection and Processing Procedures13

Ethical Considerations14

CHAPTER 1: INTRODUCTION

Background

After scanning of the economic and financial literature, we concluded that the link between the size of the board of directors and financial performance leads to contradictory conclusions. Therefore, unanimity has not been proved about this relationship. Indeed, several researchers suggest that the number of directors may influence the operation of the board and therefore the financial performance of the company. Some authors seem to favour a large council. Indeed, in an uncertain environment, the larger the board, the greater the different knowledge administrators can improve performance and to exercise effective control on the manager.

Boards of directors play a central and fundamentally important role in the corporate governance of publicly listed companies, and therefore understanding the determinants of board structure is an important research question (Arthur, 2001, pp.307-340).

The UK provides a particularly interesting setting for this purpose. The US and UK governance systems share many similarities, such as a common law system and high protection of minority rights, and the international comparative governance literature has tended to combine their features into a single 'Anglo-American' market-based system. Hence board structure will not be determined by the costs or benefits of monitoring, and therefore board structure determinants will differ in a predictable way from US firms. Our evidence supports this prediction. Although we find, consistent with US studies, that board size and the proportion of outsiders is positively impacted by greater advising needs, and negatively impacted by CEO influence, we find no evidence that the proportion of outsiders is negatively related to monitoring costs or positively related to monitoring benefits (Baker, 2003, pp.569-598).

Similarly Godard and Schatt (2004), provide more than the number of directors is more importantly the company achieves high performance. In this line, Pearce and Zahra (1989) and Provan (1980) provide for the existence of a positive relationship between board size and firm performance. In the same groove and following their meta analysis, Dalton et al (1999) confirmed this relationship are positive and it is more intense for businesses to large sizes. In the same direction, Pearce and Zahra (1989) ...