Title: Corporate governance practices of small cap companies and their financial performance: an empirical study in New Zealand

Authors: Krishna Reddy, Stuart Locke, Frank Scrimgeour, Abeyratna Gunasekarage

Addresses: Pacific International Hotel Management School (PIHMS), Private Bag 2062, Bell Block, New Plymouth, New Zealand. ' Waikato Management School (WMS), The University of Waikato, Hamilton, New Zealand. ' Waikato Management School (WMS), The University of Waikato, Hamilton, New Zealand. ' Department of Accountancy, Finance and Information Systems (AFIS), College of Business and Economics, University of Canterbury, Christchurch, New Zealand

Abstract: The purpose of this paper is to examine the effect of corporate governance practices of small cap companies have had on their financial performances. Previous studies have mainly examined governance practices of larger corporations. This analysis focuses on the governance variables that have been highlighted by the New Zealand Securities Commission (2004) governance principles and guidelines and also on the governance variables that are supported in the literature as providing an appropriate structure for the firm in the environment in which it operates. The data for 71 small cap companies listed in New Zealand over a five-year period from 2001 to 2005 was analysed. Pooled data, OLS and 2SLS regression techniques were used and Tobin|s Q, ROA and OPINC were used as the dependent variables. The evidence does support the hypothesis that the existence of board independence and audit committee has enhanced firm financial performance, as measured by Tobin|s Q.

Keywords: corporate governance; shareholder value; Tobin|s Q; board of directors; board independence; insider ownership; block ownership; small cap companies; financial performance; New Zealand; audit committees.

DOI: 10.1504/IJBGE.2008.017891

International Journal of Business Governance and Ethics, 2008 Vol.4 No.1, pp.51 - 78

Available online: 21 Apr 2008 *

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