Board Structures and Financial Performance of UK Top Firms: An Investigation of the Moderating Role of the Directors’ Compensation

Abstract

Although several studies have empirically investigated the connection between corporate      
governance structures and financial performance, evidence from the literature indicates that 
findings from these studies are inconsistent, hence inconclusive. In this light, some scholars 
suggest that the inconsistency in the findings could be an indication that there is factor(s)    
moderating the relationship between the two variables. For this reason, we investigate how 
corporate board structures relate to financial performance and the effect of directors’ financial 
compensation on such relationship using samples of the UK top firms. The findings of the 
study suggest that board composition is positively associated with financial performance 
(Tobin q). Other than that, the study also indicates that the effect of directors’ financial         
compensation interacts positively with board composition to influence financial performance. 
By implication, this finding demonstrates that financial rewards to the outside directors play an 
inevitable role in influencing the relationship between corporate board and financial             
performance.