1
Corporate Governance, Capital Markets and
Performance Large Grant
Professor Igor Filatotchev
City University, London
Executive Summary
This Report, undertaken for the ESRC, provides an evaluation of a programme of work
undertaken by the ‘Corporate Governance, Capital Markets and Performance’ Large Grant led
by Professor Julian Franks at London Business School. This Grant was awarded to increase our
understanding of the comparative success of particular capital markets in order to improve the
performance of UK capital markets and UK companies. The programme of work brought
together 7 projects which addressed several broad questions concerning the nature and
magnitude of current corporate governance.
This evaluation Report provides accountability of the ESRC’s investment in this Large Grant;
assesses the achievements and impact of the research undertaken and the effectiveness of a
Large Grant as a means of organising and enhancing the work. More specifically, the evaluation
provides:
• an assessment of the academic quality and scientific impact of the Grant
• an assessment of the Grant’s societal and economic impact
• an assessment of the value added by concentrating resources within a Large Grant
• guidance on future research priorities.
The evaluation procedures involved a range of research techniques, including a comprehensive
review of the Grant’s original research proposal and final report, as well as its academic outputs;
interviews with researchers and members of the Grant’s Advisory Board; evaluation reports
obtained from 8 independent academic reviewers; and a questionnaire survey of 13 non-
academic users, including corporate governance practitioners and regulators.
The research projects funded by the Grant share the common objective of assisting companies,
investors and regulators to achieve better corporate governance so as to improve performance of
UK capital markets and UK-based companies. Although the overall dimensions of this objective
may go way beyond the scope and time frame of a single grant, the researchers made a number
of important theoretical and empirical contributions to our understanding of the nature and
magnitude of current corporate governance problems in the UK and elsewhere.
Most of the related research objectives outlined in the Grant’s original Research Proposal and
Final Report have been met. A large number of high quality publications generated by the Grant
have certainly led to a substantial improvement in the standing of UK academic research in
corporate governance. The Grant has been instrumental in developing a host of collaborative
relationships with academics outside the LBS. In terms of dissemination of research the outputs
from the Grant were presented at both high level academic and policy conferences around the
world. By organising a series of high-level practitioner-oriented workshops and seminars the
researchers have achieved increased co-operation and collaboration with companies, government
2
institutions and public sector. Finally, a number of steps have been taken to train the next
generation of corporate governance researchers by organising 3 summer schools for doctoral
students.
Content analysis and feedback from academic referees indicate that, in academic terms, the
Grant generated high quality research outputs, although their distribution across the seven
projects was uneven. Research was disseminated across a wide range of channels including top-
rated academic journals, academic workshops and conferences, practitioner-focused seminars,
the financial and business press, and events involving key policy-making and regulatory bodies
from the UK and elsewhere. The Grant has been an effective platform in helping to develop an
extensive research network involving a large number of researchers from top European and US
institutions. In addition, it played an important role within a wider context of the ESRC
investment in corporate governance research by addressing a number of gaps in previous studies
and by setting high standards for academic publications and practitioner engagement.
However, there is also concern about the Grant’s lack of contribution to an interdisciplinary
research. As it currently stands, the theoretical perspectives from other disciplines, such as
Strategy and International Business have not been used within the Grant’s research scope. By
bringing scholars in from other disciplines to collaborate with those from Finance and
Economics, the design of research studies and subsequent findings could have been richer, and a
wider array of theoretical perspectives could have produced richer and varied outputs.
In terms of corporate governance practices, the Grant was predominantly focused on the effects
of ownership patterns and different types of owners. However, firm-level governance
mechanisms also include boards and board committees, various types of incentive schemes,
including executive share options. A growing literature considers corporate governance as a
system of interdependent elements by exploring how governance practices interact and
potentially complement each other. While mapping such combinations may be beyond the scope
of this Grant, it is important to realise that the effectiveness of particular governance practices,
such as shareholder activism, should not be studied in isolation.
In terms of research methodologies used within the Grant, the archival data and minimally
invasive study designs were predominantly used. Indeed, with one exception, there are relatively
little survey-based or primary data collection efforts occurring from corporations, institutional
investors, families, angel investors, etc. In empirical terms, recent methodological advances may
help operationalise and test more complex and context-depending theories in ways that are hard
to do in large-scale sample-base research, which often relies on very broad proxies for context
factors.
In terms of practitioner engagement, the Practitioner Survey evidence and interviews indicate
that the Grant presents a timely and focused work which could significantly add to policy debate
and have significant impact on the future developments in the governance field. More
specifically, the published research made an important contribution to the evidence base used by
the UK Government in developing policy on corporate governance and shareholder
engagement. The Grant-related discussion fora provided a benchmark against which best
practice was assessed and shared, and played an important role in forming an emerging
consensus among key opinion-leaders. The focus of the research on the analysis of the strengths
and weaknesses in UK capital markets (including the contribution of law and regulation)
provided evidence about the impact that regulatory frameworks have on the efficiency and
competitiveness of the UK capital markets.
3
However, further efforts are needed to translate research theories and findings into documents
that are easier to understand for non-academics. The Grant’s dissemination experience clearly
shows that academic research can be very helpful within a corporate context but it has to provide
clarity to the problem that it is trying to solve, to the observations that are being made, or about
potential solutions. For example, there are no provisions on the Grant’s website that facilitate
effective research dissemination and ongoing learning. This may be considered as a significant
gap in the Grant’s dissemination strategy since the internet is an important medium for
information exchanges and learning.
The Grant has built significant research capacity related to the Finance and Economics
approaches to corporate governance. It has been instrumental in developing a host of
collaborative relationships with academics outside the LBS. The Grant has also supported 3
ESRC PhD summer schools with more than 200 students from around the UK and Europe
attending. Some of them have returned to the centre for extended periods. However, the Grant’s
capacity development impact is mainly focused within Finance and Economics perspectives on
corporate governance. Even within the Grant’s host institution its impact on the governance-
related capacity in other fields such as Accounting and Management seems to be limited, and one
can see this as a target area for future capacity building leading to a more inter-disciplinary
research on corporate governance.
In terms of management of the Grant, the research projects were organised under the umbrella
of the Centre for Corporate Governance based at London Business School. Principal
Investigator, Professor Julian Franks, was directing both the ESRC funded research, and the
Centre activities. The sheer volume of top class publications, academic conferences and
practitioner-oriented workshops clearly shows that the Grant’s research team was guided by a
strong leadership, and its activities enjoyed the benefits of good management. The Centre also
has an Advisory Board that was responsible for setting the overall strategy of the Centre
including the dissemination of research. However, this “dual” governance structure that involves
management of the Grant and other projects undertaken by the Centre is not without problems.
The Report suggests that it may be helpful if Large Grants set up independent governance
mechanisms which would monitor progress of projects commissioned by the ESRC and
benchmark this progress against research outcomes, especially when there are other donors
involved. This is also important in terms of research attribution.
The Report suggests a number of areas where further research is required to form a fact base for
new policy initiatives related to corporate governance. Bearing in mind the depth and breadth of
the existing UK regulatory initiatives, it is important to verify whether policy is followed by
behavioural changes of the participants in corporate governance. Addressing this new research
agenda requires theoretical frameworks that integrate different disciplines, such as Finance,
Comparative Management Studies, Institutional Theory, International Business, etc. Future
research projects need to engage academics coming from a diverse range of disciplines that may
be able to develop a more holistic set of governance theories and models. In terms of research
focus and analytical methods, it is important to go beyond the question of maximising
shareholder returns and verify to what extent different corporate governance configurations
promote long-term, value-creating economic production in a fashion that benefits not only
shareholders but also other groups that make specific investments in corporations.
The Report suggests a number of recommendations to both the Grant’s Team and the ESRC.
Overall, it indicates that there is a need of further funding of governance-related research that
may help to build evidence base and inform regulatory process in the UK and elsewhere. A
4
number of priority areas have been identified where further investment may be particularly
important. First, more recent theoretical developments call for funding of an interdisciplinary
research that can bring together various disciplines leading to a more holistic approach to
corporate governance research. Second, in terms of current ESRC centres and groups, a number
of important complementarities between their research agenda and projects undertaken within
the Grant have been identified. Therefore, it is important to take advantage of potential synergies
between governance studies within the Grant and various projects currently undertaken by the
various ESRC centres. Third, an important area for future investment and development is
capacity building which is critical to support the “life cycle” evolution of corporate governance
researchers. There is a clear need to support and develop corporate governance researchers at
post-doctoral and mid-career stages of their careers. The ESRC therefore may want to consider
sponsoring post-doctoral awards for young researchers in corporate governance field. There is
also a scope to consolidate research expertise developed in the UK and elsewhere in order to
train young researchers at a cutting edge level in a wide set of quantitative and qualitative
research skills used in corporate governance studies. Finally, there must be clear linkages between
research and significant real-world management problems. Research can stimulate public
engagement only if adapted and translated into documents that are easy to understand for non-
academics.
The Report’s conclusion is that the Grant has made a substantial contribution to corporate
governance research both in terms of its scholarly achievements and in terms of its impact on
the regulatory process in the UK. It played an important role within a wider context of the ESRC
investment in research focused on corporate governance by addressing a number of gaps in
previous studies and by setting high standards for academic publications and practitioner
engagement. However, there is also further scope for the development of interdisciplinary
research, wider capacity building and practitioner engagement in corporate governance field.
doc_479327359.pdf
Corporate Governance, Capital Markets and
Performance Large Grant
Professor Igor Filatotchev
City University, London
Executive Summary
This Report, undertaken for the ESRC, provides an evaluation of a programme of work
undertaken by the ‘Corporate Governance, Capital Markets and Performance’ Large Grant led
by Professor Julian Franks at London Business School. This Grant was awarded to increase our
understanding of the comparative success of particular capital markets in order to improve the
performance of UK capital markets and UK companies. The programme of work brought
together 7 projects which addressed several broad questions concerning the nature and
magnitude of current corporate governance.
This evaluation Report provides accountability of the ESRC’s investment in this Large Grant;
assesses the achievements and impact of the research undertaken and the effectiveness of a
Large Grant as a means of organising and enhancing the work. More specifically, the evaluation
provides:
• an assessment of the academic quality and scientific impact of the Grant
• an assessment of the Grant’s societal and economic impact
• an assessment of the value added by concentrating resources within a Large Grant
• guidance on future research priorities.
The evaluation procedures involved a range of research techniques, including a comprehensive
review of the Grant’s original research proposal and final report, as well as its academic outputs;
interviews with researchers and members of the Grant’s Advisory Board; evaluation reports
obtained from 8 independent academic reviewers; and a questionnaire survey of 13 non-
academic users, including corporate governance practitioners and regulators.
The research projects funded by the Grant share the common objective of assisting companies,
investors and regulators to achieve better corporate governance so as to improve performance of
UK capital markets and UK-based companies. Although the overall dimensions of this objective
may go way beyond the scope and time frame of a single grant, the researchers made a number
of important theoretical and empirical contributions to our understanding of the nature and
magnitude of current corporate governance problems in the UK and elsewhere.
Most of the related research objectives outlined in the Grant’s original Research Proposal and
Final Report have been met. A large number of high quality publications generated by the Grant
have certainly led to a substantial improvement in the standing of UK academic research in
corporate governance. The Grant has been instrumental in developing a host of collaborative
relationships with academics outside the LBS. In terms of dissemination of research the outputs
from the Grant were presented at both high level academic and policy conferences around the
world. By organising a series of high-level practitioner-oriented workshops and seminars the
researchers have achieved increased co-operation and collaboration with companies, government
2
institutions and public sector. Finally, a number of steps have been taken to train the next
generation of corporate governance researchers by organising 3 summer schools for doctoral
students.
Content analysis and feedback from academic referees indicate that, in academic terms, the
Grant generated high quality research outputs, although their distribution across the seven
projects was uneven. Research was disseminated across a wide range of channels including top-
rated academic journals, academic workshops and conferences, practitioner-focused seminars,
the financial and business press, and events involving key policy-making and regulatory bodies
from the UK and elsewhere. The Grant has been an effective platform in helping to develop an
extensive research network involving a large number of researchers from top European and US
institutions. In addition, it played an important role within a wider context of the ESRC
investment in corporate governance research by addressing a number of gaps in previous studies
and by setting high standards for academic publications and practitioner engagement.
However, there is also concern about the Grant’s lack of contribution to an interdisciplinary
research. As it currently stands, the theoretical perspectives from other disciplines, such as
Strategy and International Business have not been used within the Grant’s research scope. By
bringing scholars in from other disciplines to collaborate with those from Finance and
Economics, the design of research studies and subsequent findings could have been richer, and a
wider array of theoretical perspectives could have produced richer and varied outputs.
In terms of corporate governance practices, the Grant was predominantly focused on the effects
of ownership patterns and different types of owners. However, firm-level governance
mechanisms also include boards and board committees, various types of incentive schemes,
including executive share options. A growing literature considers corporate governance as a
system of interdependent elements by exploring how governance practices interact and
potentially complement each other. While mapping such combinations may be beyond the scope
of this Grant, it is important to realise that the effectiveness of particular governance practices,
such as shareholder activism, should not be studied in isolation.
In terms of research methodologies used within the Grant, the archival data and minimally
invasive study designs were predominantly used. Indeed, with one exception, there are relatively
little survey-based or primary data collection efforts occurring from corporations, institutional
investors, families, angel investors, etc. In empirical terms, recent methodological advances may
help operationalise and test more complex and context-depending theories in ways that are hard
to do in large-scale sample-base research, which often relies on very broad proxies for context
factors.
In terms of practitioner engagement, the Practitioner Survey evidence and interviews indicate
that the Grant presents a timely and focused work which could significantly add to policy debate
and have significant impact on the future developments in the governance field. More
specifically, the published research made an important contribution to the evidence base used by
the UK Government in developing policy on corporate governance and shareholder
engagement. The Grant-related discussion fora provided a benchmark against which best
practice was assessed and shared, and played an important role in forming an emerging
consensus among key opinion-leaders. The focus of the research on the analysis of the strengths
and weaknesses in UK capital markets (including the contribution of law and regulation)
provided evidence about the impact that regulatory frameworks have on the efficiency and
competitiveness of the UK capital markets.
3
However, further efforts are needed to translate research theories and findings into documents
that are easier to understand for non-academics. The Grant’s dissemination experience clearly
shows that academic research can be very helpful within a corporate context but it has to provide
clarity to the problem that it is trying to solve, to the observations that are being made, or about
potential solutions. For example, there are no provisions on the Grant’s website that facilitate
effective research dissemination and ongoing learning. This may be considered as a significant
gap in the Grant’s dissemination strategy since the internet is an important medium for
information exchanges and learning.
The Grant has built significant research capacity related to the Finance and Economics
approaches to corporate governance. It has been instrumental in developing a host of
collaborative relationships with academics outside the LBS. The Grant has also supported 3
ESRC PhD summer schools with more than 200 students from around the UK and Europe
attending. Some of them have returned to the centre for extended periods. However, the Grant’s
capacity development impact is mainly focused within Finance and Economics perspectives on
corporate governance. Even within the Grant’s host institution its impact on the governance-
related capacity in other fields such as Accounting and Management seems to be limited, and one
can see this as a target area for future capacity building leading to a more inter-disciplinary
research on corporate governance.
In terms of management of the Grant, the research projects were organised under the umbrella
of the Centre for Corporate Governance based at London Business School. Principal
Investigator, Professor Julian Franks, was directing both the ESRC funded research, and the
Centre activities. The sheer volume of top class publications, academic conferences and
practitioner-oriented workshops clearly shows that the Grant’s research team was guided by a
strong leadership, and its activities enjoyed the benefits of good management. The Centre also
has an Advisory Board that was responsible for setting the overall strategy of the Centre
including the dissemination of research. However, this “dual” governance structure that involves
management of the Grant and other projects undertaken by the Centre is not without problems.
The Report suggests that it may be helpful if Large Grants set up independent governance
mechanisms which would monitor progress of projects commissioned by the ESRC and
benchmark this progress against research outcomes, especially when there are other donors
involved. This is also important in terms of research attribution.
The Report suggests a number of areas where further research is required to form a fact base for
new policy initiatives related to corporate governance. Bearing in mind the depth and breadth of
the existing UK regulatory initiatives, it is important to verify whether policy is followed by
behavioural changes of the participants in corporate governance. Addressing this new research
agenda requires theoretical frameworks that integrate different disciplines, such as Finance,
Comparative Management Studies, Institutional Theory, International Business, etc. Future
research projects need to engage academics coming from a diverse range of disciplines that may
be able to develop a more holistic set of governance theories and models. In terms of research
focus and analytical methods, it is important to go beyond the question of maximising
shareholder returns and verify to what extent different corporate governance configurations
promote long-term, value-creating economic production in a fashion that benefits not only
shareholders but also other groups that make specific investments in corporations.
The Report suggests a number of recommendations to both the Grant’s Team and the ESRC.
Overall, it indicates that there is a need of further funding of governance-related research that
may help to build evidence base and inform regulatory process in the UK and elsewhere. A
4
number of priority areas have been identified where further investment may be particularly
important. First, more recent theoretical developments call for funding of an interdisciplinary
research that can bring together various disciplines leading to a more holistic approach to
corporate governance research. Second, in terms of current ESRC centres and groups, a number
of important complementarities between their research agenda and projects undertaken within
the Grant have been identified. Therefore, it is important to take advantage of potential synergies
between governance studies within the Grant and various projects currently undertaken by the
various ESRC centres. Third, an important area for future investment and development is
capacity building which is critical to support the “life cycle” evolution of corporate governance
researchers. There is a clear need to support and develop corporate governance researchers at
post-doctoral and mid-career stages of their careers. The ESRC therefore may want to consider
sponsoring post-doctoral awards for young researchers in corporate governance field. There is
also a scope to consolidate research expertise developed in the UK and elsewhere in order to
train young researchers at a cutting edge level in a wide set of quantitative and qualitative
research skills used in corporate governance studies. Finally, there must be clear linkages between
research and significant real-world management problems. Research can stimulate public
engagement only if adapted and translated into documents that are easy to understand for non-
academics.
The Report’s conclusion is that the Grant has made a substantial contribution to corporate
governance research both in terms of its scholarly achievements and in terms of its impact on
the regulatory process in the UK. It played an important role within a wider context of the ESRC
investment in research focused on corporate governance by addressing a number of gaps in
previous studies and by setting high standards for academic publications and practitioner
engagement. However, there is also further scope for the development of interdisciplinary
research, wider capacity building and practitioner engagement in corporate governance field.
doc_479327359.pdf