The Impact of Corporate Governance on Corporate Performance: A Study of Technological Companies on the FTSE 250 London Stock Exchange (Financial Engineering)

Summary

• The study examines how corporate governance affects performance in technology companies on the FTSE 250, using board size, board independence and CEO duality as governance measures and return on assets as the performance proxy.p.1
• Secondary data from annual reports and the London Stock Exchange website cover a period of 5 years (2018–2022).p.1
• The FTSE 250 comprises the 101st to 350th companies by market capitalization, and only technology companies are considered.p.3
• The literature review indicates that board size and CEO duality have a positive impact on performance of UK FTSE 250 technology companies.p.1
• One earlier study of a sample of 2746 firms listed in the UK (1982-2002) found a strong negative impact of large board size on profitability and share returns.p.4
• Results on board size are mixed, and some studies suggest an average of 6 to 8 board members can favorably influence company success.p.11

Key insights

1. The study uses agency theory to examine governance mechanisms, including board size, CEO duality and non-executive directors.p.8
2. Larger boards bring diverse expertise but face greater coordination and communication challenges.p.4
3. Evidence on the link between board size and performance is equivocal.p.5
4. Non-executive directors are expected to improve oversight and reduce agency problems, although empirical findings are inconsistent.p.7
5. Stewardship theory suggests that a combined CEO and chair role promotes cohesive leadership.p.8
6. Resource dependence theory suggests firms facing solvency problems are advised to have financial institution representation on their boards.p.10
7. Future research could extend the analysis to other indexes such as the FTSE 100 and compare older and newly listed technology companies.p.11