Data (sources and collection procedures)

The data required for this study were gathered from a number of sources. A list of the companies that were incorporated in the FTSE ALL-Share index for each year of the study period was downloaded from the DataStream. Corporate governance variables, which include board characteristics represented in board size, number of independent non-executive directors, leadership structure, the composition of board subcommittees, and the characteristics of audit committee effectiveness as recommended by Smith Report (2003), all these variables were collected from annual reports for each company for the fiscal years 2005, 2006, 2007, 2008, 2009, 2010 and 2011, as well as, the board ownership variables. Electronic versions of the required annual reports were downloaded from the companies’ website; missing reports on the company website were downloaded from either Northcote Internet Ltd website or AnnualReportsforplcs.co.uk.

The data collection process involves examining the board structure, identify the number of directors, check the directors’ profiles at the appointment dates, the compliance with the independence criteria as described by the UK corporate governance code, the number of board subcommittees and their composition, and checking either the CEO and chairman posts are separated or not. In regard to audit committee effectiveness criteria, the data collection process involved a number of procedures, first, check that the firm has audited committee, then check the number of members to ensure that the committee met the minimum number, after that, check the identity of the committee members to ensure they all independent directors,

‎

Chapter 5: Research Methodology

-149-

afterward, check that at least one of the members has recent financial experience, and finally, check the number of meetings during the fiscal year.

Ownership structure data was manually collected as well. With regard to board ownership variables, these variables were manually picked up from the annual reports. This process involves categorising the board members into three different groups CEO, executive members group and non-executive member group; then finding the total number of ordinary shares held by each member and the total number of firms’ ordinary shares. In relation to the total percentage of block holding and other ownership variables, this data was manually picked up from Thomson One Banker database, and likewise, the board ownership variables, block holding variables were categorised into institutional block holding, individual block holding and total block holding variables. As a final point, financial figures of the total assets, total debt, short and long term debt, performance ratios, and variables needed for computing Tobin’s Q and free cash flow variables, all were downloaded from DataStream.

It worth mentioning that the employed sample in this study represents the following industries: Aerospace & Defence, Beverages, Chemicals, Construction & Materials, Electricity, Electronic & Electrical Equipment, Telecommunications, Food & Drug Retailers, Food Producers, Gas, Water & Multi-utilities, General Industrials, General Retailers, Health Care Equipment & Services, Household Goods & Home Construction, Industrial Engineering, Industrial Metals & Mining, Industrial Transportation, Media, Oil & Gas Producers, Oil Equipment & Services, Personal Goods, Pharmaceuticals & Biotechnology, Software & Computer Services, Support Services, Technology Hardware & Equipment, Tobacco, Travel & Leisure. This indicates that the study sample is a comprehensive sample as it incorporates most of the industries in the UK market. Figure 4 represents a pie chart of the industrial representation over the full sample.

-150-

Industrial Metals & Mining 0% Health Care Equipment & Services 1% Tobacco 1% Personal Goods 1% Industrial Transportation _1% Chemicals 1% Beverages 2% General Industrials 2% TELECOMUNICATION 2%

Food & Drug Retailers 2% Oil Equipment & Services 2% Electronic & Electrical Equipment 2% Technology Hardware & Equipment 2% Pharmaceutical s & Biotechnology 3% Food Producers 3% Constructio n & Materials 3% UTILITIES 3% Aerospace & Defense 3%

Software & Computer Services

3% Industrial Engineering

4% Oil & Gas Producers

5% Household Goods & Home

Construction 5% Mining 7% Media 7% General Retailers 9% Travel & Leisure

10%

Support Services 16%

‎

Chapter 5: Research Methodology

-151-

5.10 SUMMARY

This chapter presents the methodology applied in this study based on the study aims and objectives. This study follows the positivism philosophy, and applies the deductive approach using an archival research strategy. Throughout this chapter, the researcher explored the study hypotheses, the measurement of the agency costs proxies, the measurement of the independent as well as the control variables; the analytical procedures of this study and finally, the sampling and data collection processes.

To avoid the limitations of the prior studies, as mentions in the previous chapter, a comprehensive set of corporate governance mechanisms was employed, data required for board characteristics variables were collected manually from firms’ annual reports, ownership variables were manually collected from Thomson One Banker, and control variables data were downloaded from DataStream.

These variables were utilised to construct a baseline line model and three different sub models. Furthermore, to avoid the limitations of the OLS, panel data regression models were utilised using the data collected for 1431 firm-year observations over the period 2005-2011. This first empirical analysis utilises the full sample to identify the overall impact of corporate governance on agency costs. Given that this study aims at investigating the role of corporate governance mechanisms before and after the financial crisis, the researcher constructed two sub samples, the pre–crisis sample covers the period 2005-2007 and the post crisis sample covers the period 2009-2011. The following chapter presents the results of the empirical analysis of the full sample analysis as well as the comparative analysis of the pre and post the financial crisis, in addition to the robustness checks and the further analyses employed.

-152-