Corporate governance and performance of UK listed small and medium enterprises

This paper reports the results of an investigation into the effect of corporate governance factors on the performance of listed small and medium enterprises (SMEs), and examines whether this effect differs between the two sizes of business. The paper employs unbalanced panel data regression analysis on a sample of 234 SMEs listed on the Alternative Investment Market (AIM), for a ten-year period (2004-2013). The panel data analysis results show that for all SMEs, corporate governance factors – board size, chief executive officer (CEO) age and tenure, and directors’ remuneration – are significantly associated with performance of SMEs. The results also suggest that while board size is associated with the performance of both small and medium enterprises, CEO age is significant only for medium firms and directors’ remuneration only for small ones, while CEO tenure and proportion of non-executive directors are not significant for either. Overall, the results imply that corporate governance factors affect the performance of listed SMEs. However, this effect differs significantly between small and medium enterprises. The findings have important implications for policy makers who prescribe corporate governance mechanisms for SMEs. The paper adds to existing literature on corporate governance of SMEs by establishing a relationship between firm performance and board size, CEO age, CEO tenure, directors’ remuneration and proportion of non-executive directors.