Corporate Governance on UK Capital Structure Decisions Companies

Corporate Governance on UK Capital Structure Decisions Companies


Corporate governance is one of the most important concepts now and helps a company to gain momentum socially. This is due to the fact that corporate governance helps to mitigate agency conflicts and in turn also take care of capital structure. This paper tends to examine how the capital structure decisions get influenced by the corporate governance norms. In order to discuss the matter in detail, diverse literature base has been considered. Specifically, Pecking order theory, Timing theory, Behavioural theory, agency theory and Tradeoff theory has been used to compare and contrast the relative viewpoints. This research would contribute to the age old debate on the fact “how corporate governance influence capital structure” and “what are the possible implications”. Further, this research work would help the UK based companies to understand the importance of the corporate governance within their business organization and help them to enhance their financial business growth in future.

The primary aim of this research is to show the positive impact of the corporate governance in order to build capital structure decision in UK based companies. In Literature review chapter, conceptual framework, importance of the corporate governance, relation between corporate governance and capital structure, and the policies for improving corporate governance has been discussed. Apart from this, theories and model related to the corporate governance and capital structure have been explained in this section. Further, the research methodologies and the data collection method that has been used for this research work has been stated. Moreover, with the help of secondary analysis, importance of the corporate governance, effect of the corporate governance in capital structure decision and the need for the development of the corporate governance for capital structure decision have been analyzed.

1.1 Introduction

Corporate Governance is one of the essential aspects now for business entities. It is nothing but a set of rules to govern over shareholders and managers. Essentially, it involves with firms’ stakeholders to deliver different long-term success to its management. On the other hand, capital structure decisions are the ideas of management regarding their finances to handle overall business operations. In this way, it has great impacts thorough which economic structure decisions which have become the prime focus of the current study. As corporate governance is the pillar of entire organizational rules, capital structure decisions depend on it in a gradual manner. The issues faced by different organizations of UK to manage their capital structure decisions due to improper corporate governance have been discussed in this study. Significance of the issues in present era has also been evaluated here. The entire discussion has a great significance for showing the positive impacts of CG (corporate governance) on financial decisions. 

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1.2 Background of the study

The UK corporate Governance, previously known as the combine code have set out some good practices for companies which the companies should abide by. On 16th July 2018, the FRC updated the existing code. This code has broadened the areas of positive relationship between companies and their shareholders, focus on diversity, remuneration, clear reporting standards and others (Zhai & Wang, 2016). It is not only a matter of implications of Code of Conduct, but at the same time, it is important that organisations and professionals should consider the requirements of the link between corporate governance and capital structure. As per code 25 of the corporate governance, one of the main duties of the audit committee is to investigate financial performance of a company and provide advice regarding that (, 2018). Now, as per the mentions of Goshen & Squire (2017), equity and debt are the two main options for sourcing funding in the market. This helps to determine capital structure of a company, which in turn impacts cost of capital, net income and leverage ratios. As its results, finance equity management needs to be managed in proper way. Anomalies regarding the maintenance of such areas have been found in UK. As stated by Epstein, (2018), corporate governance is a matter of regular communication regarding process and functions with shareholder boards and operations. In this concern, it is important that all of the engaged parties are concerned regarding the goals and investment procedure. It is possible that a respective firm has set goals and it requires additional capital support. Having such scenario, it will be better to communicate all of the board members regarding capital decision making (Drover et al. 2017). A decision can be taken in a better way, but a sustainable approach can be followed by corporate governance (Schaper, 2016). This aspect has established the link between capital decision making and corporate governance.  This thing has directly reduced the cost-efficiency of the UK firms along with increasing their both short and long -term debts. In time of solving the major problems within UK companies, management has established their effective corporate governance which has both controlled and directed the ways of their financial decisions for running entire organizational operations. From the viewpoints of Brenni (2014), it has become clear that approximately 90% firms of this respective country have failed to manage their corporate governance depending on which they have faced different tax and debt related issues.

Corporate governance has power to make proper rules and regulations for organizational operations that directly helps their financial structure. Therefore, companies have taken support from the corporate governance through which they behave rightly performed in free cash flow. Practically, corporate governance has ability to change entire financial structure for which its development is necessary (As per the ideas of Goshen & Squire, 2017). Therefore, effects of corporate governance have been focused as an advantage in financial structure decisions. As per the notations of Liao, Mukherjee & Wang (2015), it is vivid that CG helps in financial decision making as well as notices poor managerial decisions to assist the economic structure of UK based firms.

Figure 1.2: Reduction in UK economic growth

(Source: Goshen & Squire, 2017)

The above figure has shown the UK economic reduction due to which capital structure decisions have also become decreased in a proper manner. For measuring the responsibilities, it can be mentioned that corporate governance board is to measure proportion of financial structure depending on the decisions of external directors (Brenni, 2014). The above graph has reflected a longer approach to establish the link between corporate governance and capital decision making. It is a fact that a wrong financial decision may liquidation in a firm and in this concern, it is important that concerns of all of the shareholder groups should be entertained. Thus, firms become successful to reduce uncertainties in their capital structure. Practically, corporate governance has a core capability to develop firms’ position in the respective market based on which the market performance is also enhanced (Detthamrong et al. 2017). Furthermore, it is only effects of corporate governance which have helped organizations to decide their pre-tax facilities as well as investor dividends. Now, in this case, it is an empirical thing that the capital structure is well defined as per the needs of stakeholders and shareholders. However, as per Sherman (2018), very few companies actually pay heed to this value and wither run in debts or take the path of fraudulent activities for showing financial attractiveness. As stated earlier equity and debt are the main options of souring funds and if basic capital structure stays faulty, it will eventually lead a company towards the path of collapse (Striewe, 2016). 

1.3. Rationale

The key issue of UK based firms is that the management has failed to handle the capital structure decisions in an accurate way. Apart from this, financial risks have not been mitigated by the companies for which their debt related problems have been enhanced in the market. For instance, the case of Tesla can be taken, which is quite a big name in the global market (Cuomo, Mallin & Zattoni, 2016). Tesla’s problems are on a serious note as the company is spending heavily but running in debt, due to which the company’s take on capital structure is being questioned (refer to appendix 3). Though the company is investing heavily for developments, yet it is a primary concern of the company to maintain proper financials so as to manage shareholders, stakeholders and management values as per CG norms (, 2018). 

Tesla is not the only one, it is viewed that the CEOs (Chief Executive Officer) of different companies have failed to receive paid value as per their wishes. In such case, they have expected £3,260,000 where the lowest value received by organizations up to £10,625 (Brenni, 2014). Therefore, huge growth opportunities of various companies have been reduced from where their financial maximization has also decreased in a huge manner. It is also considered as a major issue now as due to improper capital structure decisions, firms’ leverage position has been affected. As per the corporate governance indicators, it has also been highlighted that UK based companies have negative relationship with leverage of those organizations. As its results, CEO remuneration is highly affected and broadens economic inequity in a gradual manner.

Figure 1.3.1: Capital structure of the UK companies

(Source: Brenni, 2014)

The above figure has shown thorough reduction and depletion of capital structure in UK based firms due to which both applicability and importance of corporate governance has been overviewed. In other words, financial and previous corporate governance structure of those companies have failed to meet basic requirements of market and gained competitive advantage in a significant manner (Based on the ideas of Elshandidy & Neri, 2015). Due to this concern, as stated earlier, CG principles are revised in 2018 and codes are made more specific. This is because; more than 83.2% companies have failed to create financial ideas depending on corporate governance for their lack of capital structure to establish it within enterprises (Cuomo, Mallin & Zattoni, 2016). It is also regarded as an issue now as without proper corporate governance, companies can fail to renovate their previous financial structure. The following figure has shown proper financial degradation in the UK firms for which above issues are responsible.

Figure 1.3.2: Financial growth reduction in UK firms

(Source: Based on ideas of Elshandidy & Neri, 2015)

Even, Tesco is being rectified for accounting scandal recently for misstatements. Though the company being a popular name has been able to make up the losses due to this scandal, yet in future terms financial sourcing of this company and shareholder relations would be at stake (Vandevelde, 2017). As per Elshandidy & Neri (2015), any company with rigid corporate governance would stay away from ethical dilemma. Tesco thus have refrained from maintaining one of the main codes (code 25) of corporate governance as the audit was fraudulent in this case. From Tesco to Tesla popular names in the market are being questioned for their mis-management in capital structure polices, which is being impacted by their corporate governance norms. Hence, this topic is justified for study. 

1.4. Research aim 

The main aim of this research is to show all positive impacts of corporate governance to build capital structure decisions in UK based companies. 

1.5. Research objectives

  • To evaluate major impacts of corporate governance on the capital structure decisions of the UK firms
  • To measure the policies and procedures of the UK Government to strengthen the corporate governance rules
  • To analyze effects of capital structure decisions on firms for which corporate governance rules are mandatory
  • To recommend ways for mitigating the issues in organizational capital structure decisions through corporate governance 

1.6. Research questions

The research questions have been discussed in the following section:

  • What are the major impacts of corporate governance on the capital structure decisions of the UK firms?
  • Which are the policies and procedures of the UK Government to strengthen the corporate governance rules?
  • What are effects of capital structure decisions on firms for which corporate governance rules are mandatory?
  • What are recommendations for mitigating the issues in organizational capital structure decisions through CG?

1.7. Significance of research

Above discussion states major issues of organizational financial decisions as well as its improvement depending on corporate governance practices. Therefore, the present study has become significant as it shows the ways to the firms to follow the corporate governance for developing their financial measurements or capital structure decisions. On the other hand, it defines present economic conditions of UK organizations and major improvement areas to make their business operations effective. It needs to be mentioned that the study has shown applicable as well as strict corporate governance policies and procedures based on which companies can improve their organizational finance related decisions. Furthermore, organizational equity and debt are maintained only by the corporate governance rules which have also mentioned in this current study. Finally, the study has also become significant as it opens doors for future research on this matter by identifying prime advantages of corporate governance for capital structure decisions.

1.8. Structure of dissertation 

Figure 1.8: Structure of the dissertation 

(Source: Created by the learner)

1.9. Summary

From thorough discussion, it has become clear that corporate governance is accessed to bring changes in capital structure within various companies. The study background has been discussed in a descriptive manner from where the importance of corporate governance has been found. Rationale section has highlighted with issues related to organizational financial structure that degrade their tax system, increase long and short-term debts and reduce competitive advantage in mentioned respective market. Apparently, research objectives, aim and questions have mentioned in the study which has provided information about purpose and intentions of the research. The significance as well as necessities of this research has also been cleared from the entire study.

Chapter 2: Literature Review 

2.1 Introduction 

Influences of CG on structure decisions of finance help in improving the decision making procedure in an organization. The chapter helps in presenting the difference between both the variables in improving the decision making procedure for a particular organization in future. The chapter focuses on improving the policies and procedures for improving the capital structure in an organization.  In addition the chapter discusses about different theories that are incorporated for the betterment of the study. Lastly the chapter summarizes the research gap that is faced while doing the research. Corporate governance helps incorporating new aspects in business decisions and there are certain impacts on communication. An organisation tends to implement new decisions based on practical scenario of transactions. In this concern, it is important that all of the stakeholder groups and employees are sharing their opinion. Without having participation in decision making management of a respective firm may lose valued information. Followed by the same, it is important that all of the employee groups are getting the scope of sharing information. This participation protocol is not an easier term as a respective firm has varied stakeholder groups including external sources. In this concern, a respective firm has to follow certain frameworks. The implications of the above mentioned theory helps direct proper communication protocol. For example, having an Agency theory framework, respective management can follow proper terms of communication. However, it is important that all of the stakeholder groups are aware of such theoretical aspects. A theory is not only important to maintain implications of practices, but at the same time, it helps incorporating new ideas of corporate governance. Besides that, having a strict framework in an organisation can better specify the norms that all employee groups can better follow the regulations. In corporate governance and decision making strict governance is highly valued. In terms of organisational operations, there are also some external forces and in this concern, management has to be aware of the margin of acceptance of those forces. For example, environmental as well as financial terms including economic conditions of a market also make productivity on decision making and theoretical aspects are the guidance to manage operations. However, communication protocols are important factors that some of the mentioned theories have a support on decision making and the following literature has reflected the same.  

2.2 Conceptual framework

Figure 2.2: Conceptual Framework

(Source: Learner)

2.3 Corporate governance 

Corporate Governance helps in identifying techniques that can improve the decision making procedure in a specific firm for upcoming years. Corporate governance identifies interaction between different participants that includes shareholders and management of a specific firm. Corporate governance also focuses on managing and directing affairs that occurred within firms in order to ensure the business prosperity and corporate accountability procedure of an organization for making decisions effectively. Objective of corporate governance focuses on realizing long term value of stakeholders in order to identify risks that are faced by shareholders in improving interest received by the firm. Cuomo, Mallin & Zattoni, (2016) found that the procedure related to corporate governance helps to identify the complex matter that also involves different facets for example regulations, good practices and also ways that can improve the corporate culture of the government. 

Figure 2.3: Corporate governance

(Source: Cuomo, Mallin & Zattoni, 2016)

Besides this, corporate governance also involves the concepts of holding balance between the social and economic goals along with individuals that have also occurred in improving the government procedure for the country. The importance of corporate governance aims at encouraging the utilization procedure of collecting resources for the betterment of a particular firm for future improvement. Along with this, impacts of proper corporate governance helps in identifying the essential part that needs to be implemented for the betterment of proper governance in a country (Goshen & Squire, 2017). It also analyzes the effects of different corporate measures that are involved in improving the corporate governance procedure in the country. The measures include board independence and the ownership structure. Corporate governance also incorporates desirable efforts, sophisticated methods in order to achieve positive results from the government in upcoming years.               

2.3.1 Agency Theory 

Agency theory identifies the fundamental procedure for improving the corporate governance and also improving economic structure that is adopted by the government. This theory also identifies the separation procedure of management and ownership in a firm for betterment of capital finances in future. Shi, Connelly & Hoskisson (2017) mentions that identification of optimal capital structure focuses on identifying variables that can be used for improving the corporate governance in a firm for future. Agency theory states that it is applicable only when managers in a firm gather information on the basis of identifying different prospects of firm for future. Agency theory suggests that various ways are incorporated to mitigate conflicts that occur between managers and the shareholders of a firm in UK. This theory also discusses about investment which increases the financial debt and also helps managers in a firm in improving share equity. The theory focuses on calculating debt and equity for improving the financial condition of firms in future (Madison et al. 2016). 

2.3.2 Stakeholder theory 

Stakeholder theory incorporates the accountability procedure of management for improving the broad range of stakeholders in future. It implies that managers in a particular organization identifies networks that help in improving relationship among managers and employees in a firm for betterment of services and corporate governance procedure in future (Elshandidy  & Neri, 2015). The network includes suppliers and business partners from whom debt and equity can be collected for improving importance of firm in upcoming years. 

Figure 2.3.2: Stakeholder Theory

(Source: Elshandidy & Neri, 2015)

This theory also focuses on making managerial decisions and interests that are paid to stakeholders in calculating intrinsic values for improving the decision making procedure in a particular firm and industry in future. Stakeholder theory identifies the effect of corporate activity on finding stakeholders who are incorporated in the firm for future benefit of corporate governance and capital structure in future (Elmagrhi, Ntim & Wang, 2016).  

2.3.3 Stewardship Theory 

The stewardship theory emphasizes on protecting maximization of stakeholders based on the performance in the firm. This theory help in discussing profit of shareholders along with discussing the debt and equity that is calculated in firm. Madison et al. (2016) stated that besides this theory helps in making individual motivated and satisfied when success in a firm is achieved. This theory helps employees in gathering relevant information which can help in increasing the demand of the business for future. Stewardship model help in identifying changes that need to be made for improving the corporate governance and Laos increase the demand of capital structure for making decision easily and calculating debts easily (Veldman & Willmott, 2016). This theory mainly focuses on making employees get an idea about the changes that need to be made in calculating the debt and equity of amounts that is invested in a firm in upcoming future. Apart from this Stewardship theory also identifies the interaction of managers with employees in a firm which lays in increasing demand of firm for future. It also identifies the motivation procedure to managers and also employees in a firm for improving corporate governance in future (Sardo & Serrasqueiro, 2017). This theory identifies the impacts of so that decisions making process of finance can be recovered in UK based enterprises.    

2.3.4 Policies and procedures taken for improving the corporate governance in an organization 

Policies and procedures are incorporated in corporate governance for helping directors of an organization for ensuring accountability, transparency and fairness procedure for betterment of stakeholder procedures in a specific firm. Corporate governance highlights on incorporating new ideas in the framework. The following section has shown different policies within it:

  • Both implicit and explicit contracts that have been happened among firms, industries and stakeholders in order to distribute responsibilities, rewards and rights of individuals in the firm. 
  • It also focuses on reconciling with conflicts which occurs on lack of interest among stakeholders and also not maintaining the responsibilities and roles of individuals in improving the corporate governance. 
  • New techniques are incorporated for controlling, supervising and improving information flow procedure for calculating the accurate checks and balances that need to be incorporated in framework for improving corporate governance and capital structure in making decisions effectively (Sardo & Serrasqueiro, 2017). 

 2.3.5 CSR

Towards shareholders and others stakeholders, there are some liabilities and duties performed by business firms. In this case, sometimes, corporate governance effectively helps them to meet the organisational requirements. The CSR practice is currently including in the corporate governance practice (Mallin & Zattoni, 2016). Towards the society, environment and other areas, the corporate governance plays the role of taking the changes of improving quality standards of business. 

2.3 Capital structure 

Procedures of economic structure helps in identifying equity and debt that is utilized by various organizations which possess long term operations for improving the capital structure in making decisions effectively. As stated by Goshen & Squire (2017) capital structure focuses on combining different securities that helps in protecting the finance of a particular form and also the investment of the firm for future improvement of the company. Also Boyd, Gove & Solarino (2017) observed that organization highlights in making different combinations that helps in maximizing the value of a particular market in UK and other countries. Al-Najjar & Clark (2017) argued capital structure in an organization included equity and debt that is collected in improving the business for future benefit of the company. 

The procedure of equity financing helps in providing shares that are given by the firm in improving the business procedure of firm for gaining profit in future.

Figure 2.3: Capital Structure

(Source: Elshandidy & Neri, 2015)

In improving the capital structure shareholders of a firm involves in carrying business effectively and also sharing business with other firm for increasing the profit in future. Value of an organization is dependent on expected earnings and rate of earnings in improving the capital structure for present and future improvement of the firm. Jain & Jamali (2016) found that optimal procedure of capital structure is obtained by combining debt and equity in order to maximize value of firm. Optimal structure aims at ensuring weighted cost that need to be calculated for improving structure decisions of finance within UK based firms for increasing the profit of the business. Elshandidy & Neri (2015) suggested that capital structure focuses on combining financial resources that help in ensuring the business activity successfully.        

2.3.1 Pecking Order Theory    

This theory helps in identifying the capital structure that is driven by organizations in order to improve the financial investment for future. Firstly, the low risk debt rates are calculated for getting an estimation regarding the changes that need to be made in the firm. Lastly, failures in making changes are also taken into consideration for betterment of firms in upcoming years. Moreover pecking order theory is applicable in improving large firms that lacks in improving the financial statement and also gathers information’s which are asymmetrical and not useful for the firm (Serrasqueiro & Caetano, 2015). 

The theory helps in identifying the external and internal financing procedure that determines the unequal distribution of information within a span of time. The theory also highlights the difference between equity financing and debt financing procedure that helps in improving the firm’s business for upcoming years. It is applicable in improving the capital structure for improving the infrastructure of firm in future. Apart from this various financing procedure helps firm in increasing their profit by using the financial methods for future benefit of business in UK (Allini et al. 2018). The theory helps in identifying profitability of firm which influences the financial decisions of firm for future. Improving of capital structure identifies the financial lack that is incorporated in the firm which lowers down the improvement of business in future.      

2.3.2 Market Timing Theory 

The timing theory identifies in gaining opportunities for improving the external equity of firm for future benefit of business and also improving of capital structure in future. According to timing theory corporate executives in a firm perceives risks that is considered disvalued in the market (Setyawan, 2015). The procedure of market timing theory identifies the external finances that are calculated for bringing changes in the financial standard of firm for future. Core influences of timing theory specifies on improving the corporate financial structure for future benefit of firm and also improving the corporate governance. 

Figure 2.3.2: Marketing theory

(Source: Influenced by Iatridis, Kuznetsov & Whyman, 2016)

This theory affects the improvement of some corporate governance and also increases the capital structure for betterment of debt and equity financing procedure for future. Apart from this the theory identifies financing deficit based on external equity which is comparatively low. Effect of corporate governance identifies the economical and statistical significance of products for betterment of firm in future (Iatridis, Kuznetsov & Whyman, 2016). This theory is applicable in this study as corporate governance lays an impact in improving the capital structure by incorporating procedure of the above mentioned theory for betterment of financialstructure in various firms.         

2.3.3 Behavioural Theory  

The capital structure identifies issues that lead to an improvement of the corporate finance. Behavioural theory integrates the economical and psychological aspect that helps in identifying decision making procedure under various situations (Bridoux & Stoelhorst, 2016). The application of behavioural theory in capital structure identifies total debt and equity that is collected is appropriately used or not. The behavioural theory identifies changes that need to be made among employees working in a firm so that financial status of business can be identified. In spite of identifying financial status, other information such as incorporation of policies and procedure also need to be identified for betterment of financial behaviour of individuals for future benefit of firm. Pepper & Gore (2015) states that the concept of behaviour theory is not appropriately used in improving the effects of CG and capital structure on making decision effectively for betterment of firm in future.         

The problem of this theory occurs when conflict arises between managers and other individuals who are working in a firm for improving the corporate policy. Based on this theory, capital structure and corporate governance effects can be improved. Agency theory is used in designing incentives that helps individuals in getting motivated and improve the capital structure for upcoming years.      

2.3.4 Trade off Theory 

This theory help in identifying the market imperfection procedure in order to get an accurate value that calculates the debt-equity ratio by incorporating trading off as an advantage and debt as disadvantages in the firm which uses this theory for betterment of firms in future. Mason & Doherty (2016) stated that in this theory firms do not possess any taxes on any product. This theory identifies the capital structure of a firm and also tries new that can improve the profitability and debt calculation procedure in firm. This theory identifies the debt that is calculated and also identifies the equity ratio which increases demand of debt holders for improving investments that is done in a specific firm.

Figure 2.3.4: Trade off Theory

(Source: Doherty, 2016)

The trade off theory specifies in incorporating new ideas for the betterment of debt-equity ratio for future betterment of firms in UK. The earlier discussed theory is also incorporated in order to assume firms financial distress. The trade off theory identifies the optimal level in an organization when marginal cost is more than the debt cost (Moyo, 2015). Benefits of debt cost focuses on identifying the tax deductibility procedure in order to improve interest payment based on personal taxes that are calculated for improving the optimal structural decisions of finance. Effects of corporate governance and capital structure help in making decisions effectively. 

Figure Trade off Theory

(Source: Sardo & Serrasqueiro, 2017)

Trade off theory also identifies another form which is dynamic trade off theory. This theory helps in identifying the balance that is calculated in identifying the equity and debt that is calculated for increasing the demand of firm for future (Sardo & Serrasqueiro, 2017).  

2.3.5 Procedures and policies

For improving policies and procedures certain legislative bodies are incorporated which includes Companies Act 2006 in UK (, 2019). This act helps in identifying shareholder interest for the betterment of decision making procedure in firm. The Act help in identifying the necessary changes that needs to be made in the firm for betterment of economic status for future. Based on UK laws policies and procedures that helps in solving issues are incorporated by many firms to identify the issues that lead to downfall of capital structure and corporate governance in making decisions effectively. For improving the policies and procedures in a firm UK government incorporates code and ethics that can help the firm in improving its capital structure for upcoming years (, 2019). The Cadbury Code highlights about the changes that are adopted in the stock exchange market for the betterment of firms in future. The code of Walker Report highlights the risks that lead to downfall of firm in future. This code also encourages employees in making demand for increasing incentives and bonus schemes which help firms in encouraging employees and also calculate equity and debts for improving the corporate governance in future (, 2019).            

2.4 Relation between corporate governance and capital decision making

Corporate governance received attention in improving emerging market condition for the betterment of financial status of country. On other hand capital structure tries in interacting with individuals for getting an idea about economic and financial status of the firm in previous years and upcoming years. Boyd, Gove & Solarino (2017) said that financial policies are considered as one of the most important issue that lead to the downfall of capital in firm. Financial policies in a firm is considered as a subject which helps other firms in getting idea about some necessary equipments that need to be incorporated for future improvement. Goshen & Squire (2017) argued that CG is not matching the pace with capital structure as many firms in a particular country is not focusing on improvement in financial status of the firm. Controlling mechanism helps corporate governance focus on getting results that highlights the repaying procedure of debt and interest collected from a specific firm. 

Figure 2.4: Capital structure

(Source: influenced by Al-Najjar & Clark, 2017)

Goshen & Squire (2017) found that targeted ratio is not considered as an important aspect in improving the infrastructure of the firm for future. Many companies in UK prefer retain earning of debts as a source of improving the funding procedure in the firm. Al-Najjar & Clark (2017) argued that corporate governance is not matching with the capital structure that is incorporated in the firm for identifying the equity and debts of the business (Striewe, 2017).

Apart from this, corporate structure identifies the holding procedure of economic and social goals that need to be incorporated in the firm for improving the business. Proper corporate governance helps in aligning individual interest that leads to the betterment of firm’s financial interest for future. On the contrary, capital structure is not incorporating new policies that can helps corporate governance in increasing importance of firm for improving business (Sardo & Serrasqueiro, 2017).

The structure of corporate governance and capital decision making accepts that a company’s corporate administration is all the while controlled by a gathering of related administration parts and other firm qualities. While the capital markets assume a critical job in improving corporate administration norms, the adequacy and believability of such exertion may be compelled by poor firm-level corporate administration. Additionally, the circumstances and logical results relationship can work the other way for example firm-level corporate administration quality can improve both the association’s capacity to access account and its money related execution, which in the long run lead to capital market advancement (Schaper et al. 2016). The system is principally founded on the monetary ways to deal with corporate administration, despite the fact that it perceives some portion of the presumptions of the partner hypothesis and the political economy parts of corporate administration. The capital market of an organisation can apply significant effect on the firm by forcing certain principles and guidelines identifying with the association’s administration rehearse (Striewe, 2016). While the lawful and administrative structures are basic, the capital market, with satisfactory straightforwardness and responsibility set up, can eventually compensate or rebuff firms for their administration practices. The capital market can use its administration job in relieving the office issues through restraining the administration and improving the association’s general administration. Striewe (2016) contend that the quality of a nation’s outer capital market decides the level of a company’s speculation execution paying little mind to how intently administrators’ and proprietors’ interests match. Be that as it may, the corporate administration job of the capital is more averse to be successful in a creating economy. As Drover et al. (2017) watch, the capital markets in creating nations give minimal motivation to better corporate administration (either in the genuine area or in the monetary division), fundamentally in view of the predominance of a couple of huge firms, low exchanging volumes and liquidity, In addition, the circumstances and logical results relationship can work the other way for example the condition of nation just as firm dimension corporate administration may impact the advancement of the capital market. Detthamrong et al. (2017) has stated that a firm is probably going to get outer fund not just due to the notoriety of the capital market and over the top financial specialist good faith, yet additionally because of confirmations given by the corporate administration framework. On the other hand, it is also a fact that most of the organisational or financial decision making concerns are based on the operational procedure and availability of concerns. Now, it is only possible through an effective communication and discussion with shareholder boards. This valued aspect has established the link between corporate governance and capital structure decisions (Zhai & Wang, 2016).       

2.5 Effects on corporate governance in improving decision making procedure 

In time of improving the independent variable, the capital structure of a company possess a negative effect which leads to the downfall of decision making power in the company for future benefit of the firm (Cuomo, Mallin & Zattoni, 2016). Besides this some effect in corporate governance leads to lowering of debt and equity that is calculated in improving business of a firm in future. Effect that is possessed by the variables can be direct and also indirect. Goshen & Squire (2017) states that direct effect helps in identifying the decision making procedure directly on improving the capital structure for receiving more profit in future. On other hand, indirect effects identified that corporate governance affects capital structure in improving financial structure of a firm in future. Effects of corporate governance identifies the necessary changes that need to be made for improving capital structure for making decision effectively in a firm for future benefit of business (Al-Najjar & Clark, 2017). Capital structure highlights making decisions in a firm focus on identifying debts and equity that is calculated for improving economic status of firm in future. 

2.6. Literature gap

From the viewpoints of Jain & Jamali (2016), most valuable effects of corporate governance on corporate social responsibility (CSR) have been discussed. This study has also shown the financial structure development depending on the CSR responsibility in a required manner. On the other hand, Elshandidy & Neri (2015) stated huge risks related to corporate governance which has also created issues in the firms’ financial performance. Market liquidity level has also been discussed here along with principles of corporate governance. However, none of these have revealed ups and downs in capital structure depending on which advantages of corporate governance can be evaluated. It can be regarded as a literature gap which has been mitigated in study. Different influences of CG have also been evaluated in order to mitigate ups and downs in capital structure decisions.

2.10. Summary 

The entire discussion has shown core relationships between corporate governance and capital structure decisions. In such case, influences of independent variable on the dependent variable have also been shown in section. It has also been found that UK based firms have failed to run their financial decisions that directly reduce their organizational performance. Brief outline of financial structure and corporate governance have been highlighted in current chapter. Major usefulness of the corporate governance effects to develop the financial decision making procedure have also been evaluated in the study. However, different issues have been found to meet proper ways for achieving the corporate governance for which several policies and procedures have been discussed. It has also been found that the policies and procedures are highly applicable to make proper effects on financial structure. Pecking Order Theory, Timing Theory, Stakeholder theory, Agency Theory and others have been discussed in this current study to support the CG practices for developing the capital structure within the UK organizations.

Chapter 3: Methodology 

3.1. Introduction

Methodology is one of the most valuable chapters within entire dissertation as it focuses on the different steps of the entire research. Researcher has tried to select proper research philosophy, approach and design through which the whole research has been commenced. Justifications for selecting research approach, design and philosophy have also been discussed. Data collection method and analysis techniques have also been described here along with ethical consideration and data accessibility issues.

3.2. Research onion

Figure 3.2 Research onion

(Source: Saunders, Lewis & Thornhill, 2012)

Research onion is a process of justifying different steps of research from starting to the ultimate end. From the proper justification of research onion, research aim and objectives are elaborated in a proper manner (Saunders, Lewis & Thornhill, 2012). Practically, in the context of the present research, researcher has tried to evaluate different steps such as research philosophy, approach, design and others which have been justified only through the research onion. From these steps, data analysis process has also been achieved by researcher in time discussing core impacts of CG on the finance structural decisions of UK firms. In addition to this, research onion has helped to identify additional elements which are applicable for entire research. As the understanding of the research process has been developed through research onion, researcher has tried to depend on it. In other words, researcher has applied different strategies for commencing entire research for which research onion has supported in a proper manner.

3.3. Research philosophy 

Research philosophy is selected by researchers to measure the applicability of information. Practically, research philosophy has been divided into various sections among which Positivism, interpretivism, axiology, realism are highly important. However, for conducting the entire research, researcher has depended on the Positivism philosophy.


Positivism philosophy has the power to attract the right approach of researcher to gain the desired outcomes through observational ways (Frère, 2019). The collected information of researcher has become trustworthy as it has a well defined through the above mentioned philosophy. Even, this philosophy has assisted researcher to make minimal errors while collecting information regarding the impacts of corporate governance on capital structure decisions in the UK companies. Truth to say, this philosophy has helped to analyse logical data to researcher for which it has been chosen by researcher to fulfil the basic requirements of entire research.

Figure 3.3: Research philosophy

(Source: Created by the learner)

3.4. Research approach

Depending on the research approach, a researcher becomes successful by broadening the assumptions to present the detailed data analysis process. Mainly, there are three types of research approaches are seen while conducting entire researches which are Abductive, Inductive and Deductive approach. However, researcher has selected Deductive approach to complete the entire research.


Deductive approach mainly helps to develop the hypotheses of the research in a significant way (Grangel-González et al. 2016). Therefore, researcher has chosen it and aligned the research with supportive theories. Developments of financial performance through enhancement of CG in UK companies have been supported by theories by applying the above mentioned approach. Through accessing the approach, researcher has also collected data in a quick manner and saved time for the whole research. As this approach is developed through reasoning, proper supports and methods have been analyzed by researcher regarding the topic by applying this approach.

Figure 3.4: Research approach

(Source: Created by the learner)

3.5. Research design

In order to extract right conclusions from research, research design is applied by researchers (Creswell, 2013). Moreover, depending on the research design, researchers become successful to meet all the research specifications in a thorough manner. Practically, three categories of research design have been followed by researchers which are Causal, Descriptive and Exploratory. However, the researcher of the present research has chosen Descriptive Design to conduct a quick overview on the whole research.


Descriptive design can be commenced as a scientific method which involves with description and observation to get ultimate descriptive outcomes from research (Hayes & Hibbing, 2017). Applying the research design, the researcher has become successful to gather information related to the issues of corporate governance as a developmental process of financial structure in the UK organizations. Descriptive design has helped researcher for addressing the relationships between dependent and independent variables which are financial structure decisions and corporate governance.

Figure 3.5: Research design

(Source: Created by the learner)

3.6. Data collection method and Sample selection

It is important for researchers to select a right data collection method based on which the practicality of the research is presented. In the context of present research, the researcher has been depended on the secondary data collection method and collected information from 31 different companies in UK with the help of quantitative method. Depending on the sources, researcher has developed the study and collected information regarding the effects of corporate governance on the financial structure decision of the UK firms. The reason behind the selection of secondary data collection method is that reliable data can be collected from secondary sources like company’s annual report, website and other company publications. Moreover, this method consumes less time as well as fewer budgets (Johnston, 2017). For that reason, researcher has completed whole research by depending on the method for which quick information has been got as outcomes. 

3.7. Data analysis Method

After collecting information through secondary data collection process, researcher has depended on quantitative data analysis technique. In order to analyze data gathered from secondary sources, researcher has selected SPSS analysis techniques in which the regression analysis has been done. The relationship of CG and CS has been driven by assessing the board size, board composition, CEO duality, board committee, board meetings, ROA and type of company. The regression method has been incorporated for analysis. Moreover, the SPSS tool has also been utilised for descriptive analysis which includes the mean, standard deviation and median, mode, maximum and minimum.  From the discussions of Collis & Hussey (2014), this analysis mainly presents various themes which are linked with present research and shows its applicability in that particular research. The considered variables are capital structure ratio and Measurement of Corporate Governance. 

3.8 Issues for data accessibility

In order to complete the entire research, the researcher has depended on secondary data collection method. In such case, information on 31 entities has been collected through different sources. However, several issues are faced by researchers while collecting information from secondary sources as it is highly time consuming (Jentoft & Olsen, 2017). Primarily, researcher has failed to understand few unusual words mentioned in the journals related to the corporate governance. However, the extensive research process has helped to complete the research in an effective way. On the other hand, protecting their confidentiality of the data and information is another issue as well as risk. Collecting data from company websites and annual reports and using it for other commercial purposes can raise privacy issues. These data are kept with proper password protection and confidentiality that only the researcher can use the data for research purpose. The secondary data is freely available as per normal web search or on the internet. However, the ownership of the data and information needs to be acknowledged. Therefore, there is a need of adhering to the guidelines when reusing data for some other purposes.

3.9 Ethical consideration 

In time of collecting information from different secondary sources, researcher has focused on different ethical guidelines such as ethics of Northumbria University. In such case, intellectual property of the University has been verified by the researcher in a systematic way. In protecting the data that is collected UK companies’ focuses on incorporating Acts such as Data Protection Act 2018 which identifies changes that can be made in improving the data that is collected (, 2019). Similar data has been accessed once by the researcher while getting information from different journals. Moreover, plagiarism related issues have been focused by the researcher which has also reduced the chances of similar data accession. Additionally, confidentiality of data needs to be maintained by not mentioning the name of the companies and their dependence on corporate governance (Petrova, Dewing & Camilleri, 2016). The researcher has tried to maintain it in a proper manner. Finally, the researcher has downloaded and accessed the original journals for all the included information in the research.

3.10 Research limitation

It is estimated that the researcher has collected information from only secondary sources. In such case, primary data collection has not been accessed by the researcher which can emerge as a limitation to this research. It can be considered that the research limitation as interview and survey data collection provides more practical and reliable data (Cyr, 2016). As the researcher has not depended on the secondary data collection, truthfulness of the collected information has not been overviewed by the researcher in a proper manner. Apparently, as the procedures have been conducted, researcher has failed to get required data within short time span as the qualitative data has not be considered under this research (Thomas et al. 2018). This research limitation has also been faced by the researcher while doing the entire research.

3.11 Timeline 

Figure 3.12: Timeline

(Source: Project Libre)

3.12 Summary

From the above discussion, it has become vivid that the researcher has chosen deductive approach, positivism philosophy and descriptive design for completing the whole research. Only secondary data sources have been used and the gathered data have been analyzed through thematic analysis. Justifications for selecting different approach, design and others have been discussed and rationalized in the study. It has been found that researcher has included few journals, books and other secondary sources depending on certain basic criteria such as accession CEO information. Data accessibility issues of the researcher have also been highlighted in this chapter along research limitation. Research ethics in time of collecting information from secondary sources have been mentioned in this chapter. Finally, a timeline has been presented from which maintained timeframe of the researcher is focused.

Chapter 4: Data Analysis

4.1 Introduction

Data analysis is one of the most important and necessary parts within a research work. Data analysis within a research work used to help the researcher to combine all the relevant data and information which will be collected for the research work. The researcher focused on collecting information from different areas in order to increase the capital structure in UK. In this chapter, only the secondary method of data collection is used for gaining information on the corporate governance practices in 31 companies of UK. The data on corporate governance and capital structure has been acquired from public, private as well as single owner firm. This method has helped to get an idea about knowledge and improve evaluation towards the effects of corporate governance on capital structure decision. The investigation of corporate governance practices in some of the London Stock exchange Listed companies has been done based on the availability of data for the period of 2010 to 2016. The analysis of the data has been made on the basis of mean, median, mode, minimum, maximum, standard deviation. Moreover, the regression and correlation analysis has been conducted with the help of SPSS to analyse the relationship among the variables.

4.2 Secondary data collection method 

As per the study, secondary data collection method is used which helps in gathering information for enriching the quality of data that is collected. Data collection methods can be split into two parts- primary and secondary data collection method.

Secondary data has been considered here in order to improve the collection procedure for better improvisation of CG in organization in UK. However, this analysis is based on the collection of data through secondary methods. This data collection method helps the researcher to analyze all the relevant and important resources or information easily.

Thus, the secondary data collection method will be followed in this present research work so that relevant and necessary information related to the research work can be achieved. The necessary and the relevant information obtained from this collection method will be beneficial for the organizations or the companies in order to make improvement in strategies and decision making a process in a more systematic manner in the UK market.

Secondary data analysis

Capital structure (debt ratio) Type of company Board committee Board Size Board meeting per year  Board composition ROA Leadership style
1 1 9 6 2 2 1 1
0 2 2 8 1 2 0 0
1 2 7 5 2 3 1 1
1.5 2 9 4 2 4 0 1
1 1 8 3 2 3 1 1
1 1 8 3 3 5 1 1
2 1 11 2 4 6 1 1
1.5 1 13 9 3 5 1 1
1 2 7 2 3 4 1 1
1 0 8 1 3 6 1 1
1 0 10 1 3 5 1 1
3 0 19 1 3 3 1 1
1 2 11 10 2 6 1 1
1.5 2 15 11 3 7 1 1
2 2 22 15 2 5 1 0
0 2 3 9 2 2 0 1
1 2 15 6 3 7 0 1
2 2 18 7 3 6 1 1
1 2 7 5 3 2 0 1
0 2 4 4 1 2 0 0
0 1 6 3 2 5 0 0
2 1 20 5 3 4 1 1
1 0 13 1 3 6 1 1
1 0 16 1 3 4 1 1
1 2 10 8 3 4 1 1
1 2 18 9 3 4 1 1
2 2 25 4 4 3 1 1
1 2 18 5 3 6 1 1
1 2 11 4 3 10 1 1
1 1 8 6 3 7 1 1

The above table shows the corporate governance practices in 31 London Stock Listed companies of UK. The data has been collected from secondary sources such as websites, annual reports of the London Stock Exchange publication. The information about corporate governance and capital structure information has been acquired mainly from the annual reports of the companies for the period of 2010 to 2016. The data includes the variables like the board size, board committee, Return on assets (ROA), type of company that is either public, private and single owner firm. Other variables include number of board meeting, leadership style that is the combined leadership and separate leadership and capital structure that is the total debt to equity ratio.

In the variable type of company, 0 refers to the single owner company, 1 signifies the public company and 2 refers to the public owned company. In the variable ROA, 1 signifies the high return on assets and 0 means the low or medium return on assets. Again for leadership style or CEO Duality 1 signifies the combined leadership and 0 portrays the separate leadership. Board size refers to the number of the directors present in the company and board composition implies the number of non executive directors divided by total directors. 

Descriptive analysis

  capital structure Type of company Board committee Board Size Board meeting per year Board composition ROA Leadership style
N Valid 31 31 31 31 31 31 31 31
Missing 0 0 0 0 0 0 0 0
Mean 1.145 1.39 9.94 5.29 2.68 4.61 .77 .87
Median 1.000 2.00 10.00 5.00 3.00 5.00 1.00 1.00
Mode 1.0 2 8a 1 3 4a 1 1
Std. Deviation .6607 .761 4.074 3.398 .702 1.874 .425 .341
Minimum .0 0 2 1 1 2 0 0
Maximum 3.0 2 19 15 4 10 1 1
a. Multiple modes exist. The smallest value is shown

Table 1: Descriptive Statistics

(Source: SPSS)

The above data has shows that there were 31 number of observations and each one of them is valid i.e. there is no missing data. The mean for capital structure is 1.145 which implies that most of the company’s debt to equity ratio lies on an average to 1.145. Again the median is also found to be 1 that is most of the companies have a capital structure of 1. The standard deviation for this variable is 0.66, the minimum is 0 and maximum is 3. 

Considering the variable the type of company, the average value is obtained as 1.39 that is most of the data on corporate governance practices has been collected from private companies. The median and mode is 2, standard deviation (SD) is 0.7 and maximum range is 2. As per the ideas of Mertler & Reinhart (2016), the mean shows the average of all the data, the median is the middle most value and the mode represents the highest occurrence of a particular data in a data set. 

Taking into concern the variable board committee, the mean, median and mode is 9.94, 10 and 8 respectively. The standard deviation is 4, the maximum is 19 and minimum is 2. Again, considering the board size the mean and median is obtained to be approximately equal to 5 and the mode is 1. The descriptive statistics for number of board meetings per year is calculated as 3 approx for median, mode as well as mean. This signifies that the average number of meetings in these entities per year is 3. The SD is 0.7, maximum is 4 and minimum range is 1 that is there exist those companies as well whose board meetings are conducted only once a year.

The board composition’s mean value is calculated as 4.61, median 5 and mode is 4. Moreover, the SD value is 1.874, minimum is 2 and maximum range is 10. Again, for ROA, the median, mode and mean value is approximately equals 1 which portrays that the return on assets for most of the companies selected here is high on an average.  Lastly for leadership style, the dummy variable 0 and 1 is considered. The mode, mean and median being 1 signifies that the CEO duality in these enterprises are mostly combined leadership rather than separate leadership (Mertler & Reinhart, 2016).

Regression analysis

Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .872a .761 .688 .3691
a. Predictors: (Constant), Leadership style, Type of company, Board composition, Board committee, ROA, Board Size, Board meeting per year
b. Dependent Variable: capital structure

Table 2: Regression analysis

(Source: SPSS)

The R square value in this case is obtained as 0.761 which is quite significant. This implies that 78% of the changes in the dependent variable can be explained by the independent variables considered here. The dependent variable is the capital structure and the independent variables are the board size, board composition, board size, leadership style, Return on assets, board meetings per year and type of company. The independent variables are the practices of corporate governance. Therefore, based on the ideas of Pinotti & Swan (2017), it can be said that practices of companies have 76.1% affect on the capital structure.

Model Sum of Squares df Mean Square F Sig.
1 Regression 9.964 7 1.423 10.449 .000b
Residual 3.133 23 .136    
Total 13.097 30      
a. Dependent Variable: capital structure
b. Predictors: (Constant), Leadership style, Type of company, Board composition, Board committee, ROA, Board Size, Board meeting per year

Table 3: ANOVA

(Source: SPSS)

The ANOVA table shows the relationship between the dependent variable (DV) and the independent variables (IV). The p value determines the significance level of the variables. The p value being less than 0.05 implies that the DV and IV are significantly associated and have impact on each other. On the other hand, the p value being greater than 0.05 portrays that there is no association. The null hypothesis (H0) in this case is that is no relationship between practices of corporate governance and capital structure. On the contrary, the alternative hypothesis (H1) is that an association is present between the practices of corporate governance and capital structure in decision making. Therefore, here the p value is obtained as 0.00 which implies that the capital structure and the other independent variables have significant interrelationship. This portrays that the H0 is rejected and H1 is accepted (based on the ideas of Trafimow & Earp, 2017)

Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) -.445 .344   -1.294 .208
Type of company .017 .125 .020 .139 .891
Board committee .114 .021 .703 5.509 .000
Board Size .006 .028 .031 .212 .834
Board meeting per year .191 .158 .203 1.208 .239
Board composition -.074 .041 -.211 -1.808 .084
ROA .295 .219 .190 1.351 .190
Leadership style .005 .275 .003 .019 .985
a. Dependent Variable: capital structure

Table 4: Coefficients

(Source: SPSS)

The coefficients table determines the p value of each of the variables utilized. Here also the value below 0.05 means that there is a relation or impact of the variable upon the dependent variable. Again, the value above 0.05 determines that there is no association among the factors. 

The sign of the coefficients also imply the positive or negative relationship among the factors. Al the variables have positive coefficients except that for Board composition. This signifies that the corporate governance practices that include the factors like board size, leadership style, meetings and others is positively related to the capital structure of the companies.


  capital structure Type of company Board committee Board Size Board meeting per year Board composition ROA Leadership style Unstandardized Residual
capital structure Pearson Correlation 1 -.182 .827** -.012 .572** .168 .536** .382* .489**
Sig. (2-tailed)   .327 .000 .949 .001 .366 .002 .034 .005
N 31 31 31 31 31 31 31 31 31
Type of company Pearson Correlation -.182 1 -.164 .613** -.258 -.055 -.339 -.187 .000
Sig. (2-tailed) .327   .379 .000 .161 .769 .062 .315 1.000
N 31 31 31 31 31 31 31 31 31
Board committee Pearson Correlation .827** -.164 1 .023 .529** .320 .453* .306 .000
Sig. (2-tailed) .000 .379   .902 .002 .080 .010 .094 1.000
N 31 31 31 31 31 31 31 31 31
Board Size Pearson Correlation -.012 .613** .023 1 -.281 .023 -.045 -.254 .000
Sig. (2-tailed) .949 .000 .902   .126 .900 .808 .167 1.000
N 31 31 31 31 31 31 31 31 31
Board meeting per year Pearson Correlation .572** -.258 .529** -.281 1 .434* .530** .656** .000
Sig. (2-tailed) .001 .161 .002 .126   .015 .002 .000 1.000
N 31 31 31 31 31 31 31 31 31
Board composition Pearson Correlation .168 -.055 .320 .023 .434* 1 .347 .232 .000
Sig. (2-tailed) .366 .769 .080 .900 .015   .056 .208 1.000
N 31 31 31 31 31 31 31 31 31
ROA Pearson Correlation .536** -.339 .453* -.045 .530** .347 1 .483** .000
Sig. (2-tailed) .002 .062 .010 .808 .002 .056   .006 1.000
N 31 31 31 31 31 31 31 31 31
Leadership style Pearson Correlation .382* -.187 .306 -.254 .656** .232 .483** 1 .000
Sig. (2-tailed) .034 .315 .094 .167 .000 .208 .006   1.000
N 31 31 31 31 31 31 31 31 31
Unstandardized Residual Pearson Correlation .489** .000 .000 .000 .000 .000 .000 .000 1
Sig. (2-tailed) .005 1.000 1.000 1.000 1.000 1.000 1.000 1.000  
N 31 31 31 31 31 31 31 31 31
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

Table 5: Correlation

(Source: SPSS)

The correlation table shows the association of one variable with the other. In this case the relationship between the dependent and the independent variable is to be determined. This means the influence of corporate governance on capital structure decisions are to be determined. The correlation value lies within the range +1 and -1 (Xu &Deng, 2017). Here it is observed that the Pearson correlation value lies within this particular range. Therefore, it can be said that there is an association between the independent variables chosen and the dependent factors.

The table identifies the value of dependents and independent variable in order to improve the CG and increase the value of capital structure in future. The above table’s calculated the coefficient correlation value of the dependent variable in order to increase the demand of CG and improve the capital structure in future. Based on the above value changes that need to be made is discussed in order to increase statistics and also identify the importance of CG in improving the capital structure of firms. 

For improving the CG and capital structure changes that need to be made is discussed and with the help of SPSS regression and other factors are identified for better improvement of capital structure and accurate information for betterment of capital structure in future. 

4.3 Summary

Based on the above secondary data analysis changes that need to be made is identified with the help of collecting information on 31 companies of UK and getting relevant information for future improvement of CG and capital structure. Thus it can be said that data analysis helps in identifying areas from where necessary information can be collected in order to get accurate information regarding the research done. The present study identifies that secondary data collection procedure is conducted for improving the research. Secondary data collection helps in analysing and evaluating outcomes regarding the information gathered for future betterment of research. The secondary data analysis has determined that corporate governance has 76.1% impact on the capital structure decisions of firms. 

Moreover it can be said that corporate governance helps in identifying changes that can be made in improving the role of controlling and managing business in a systematic way. Capital structure helps in improving the financial structure of organization for improving the growth of capital in future. Based on the changes that can be made is identified and companies can get an idea about what are the necessary areas can be improved for betterment of firms in future.  Further it can be analysed that CG helps in identifying the capital structure and also make decisions effectively in order to increase the growth of firm in UK for future years.

Chapter 5: Conclusion and Recommendations

5.1 Conclusion 

The entire study has focused on the effectiveness of corporate governance on the capital structure decisions in UK based companies. In the Introduction chapter, the issues related to capital structure and financial standards within UK companies have been focused in a thorough manner. Along with this, the challenges faced by the organizations to implement the CG have also been discussed with proper contexts. Research aim, objectives and questions have been shown main purpose of the study. Study backgrounds as well as rationale have provided information about the major issues faced by the UK based companies to implement corporate governance and get influential effects from it to restructure their capital related functions.

The second chapter, Literature Review, has shown the relation between two variables which are dependent and independent variables from where the major impacts of corporate governance on the capital structure have been introduced. It has also been found that organizations bring changes in their CG policies and procedures through which financial structure related improvements are accelerated in significant ways. It has also shown brief outline of corporate governance and capital structure from where their core elements and factors are verified. Supportive theories have been defined to develop the financial procedures with organizations through CG especially for accelerating capital structure decisions. Literature gap has also been shown to show the limitations of the previous research and capabilities of the current research to meet it.

From the Methodology chapter, the selected research philosophy, approach, design and data collection process have been found. The key analysis procedures of gathered data by the researcher have also been known from this chapter. In such case, secondary data collection method is used in order to identify changes that can be made for improving the capital structure in future. Based on the data collection method and information that has been incorporated has helped in better improvement CG in and capital structure in future. 

In time of implementing the CG and developing its potentialities within UK based companies, major issues are seen and predicted which have been discussed in the Data Analysis section. In this section information is collected from secondary sources about corporate governance practices of 31 companies of UK that are listed in London Stock Exchange. This has helped in providing information for betterment of information and increasing the demand of corporate governance and capital structure in future. The analysis conducted help in identifying changes that can be made in order to increase the infrastructure of firms in future and also identify are that can be incorporated for better improvement of capital structure in future. Thus the secondary data collected by the researcher is helpful as with the help of SPSS necessary data that can be incorporated is identified for improving the capital structure of firm in UK.  

Finally, the Conclusion chapter presents summarization of all the above chapters in a gradual manner. The mentioned objectives of the research have been linked here through evaluating its presence in different sections. Future scope of the study has also become a major part of the chapter. Along with this, several recommendations have been discussed to develop corporate governance for supporting capital structure decisions of the UK based enterprises.

5.2 Linking with Objectives

In the literature review section, benefits of corporate governance as well as its advantageous effects on the firms’ capital structure decisions have been evaluated. It has tried to show the elements of CG that highly help in upliftment of financial structure. With implementation of the CG, financial structure developments in various UK based firms have been defined in the data analysis section. It is seen that stock change and tax system have been broadened as effects of CG. Practically, the financial performances of the organizations have been shown that presents huge level of growth in the respective country. Thus, the first objective that was “To evaluate the major impacts of corporate governance on the capital structure decisions of the UK firms” have been met in Literature review and data analysis chapters.

It is estimated that proper financial structure decisions depend on the corporate governance of the UK based firms. In such case, different policies and procedures are introduced to take influential changes in capital structure decisions in the literature review section. Different techniques related to CG policies have also been described here for checking balance sheets and financial terms of UK organizations. Companies Act 2006 has also been incorporated for improving CG in a responsive manner. Many codes and ethics are highlighted to develop the policies of CG structure through which financial structure of organizations are developed. Thus, the second objective “To measure the policies and procedures of the UK Government to strengthen the corporate governance rules” is met in the Literature Review section.

Similar to the CG structure development, capital structure decisions are also very important for enterprises. In that context, maintenance of CG rules and regulations are highly necessary. Practically, capital structure decisions help companies to reduce the economic risks and manage financial equity within organizations which have been mentioned in literature review chapter. The presence of CG structure also becomes valuable for changes in the financial structure decisions. In this way, the third objective “To analyze effects of capital structure decisions on firms for which corporate governance rules are mandatory” has been met in the Literature review chapter.

It is highly important to know the best paths for grasping the changes within UK organizations related to CG structure for increasing efficiency of capital structure decisions. Negative corporate governance makes huge number of disadvantages within companies for which their capital structure decisions have not taken right part for solving debt related issues.  Therefore, different suggestions have been mentioned based on which UK companies can change their financial structure to properly keep the economic effects. The ways of leverage measurement have also been analyzed to facilitate organizational economic decisions. Thus, the fourth or last objective of the research that was “To recommend ways for mitigating the issues in organizational capital structure decisions through corporate governance” has been met in recommendation section.

5.3 Proposed Recommendations

As per the above discussion, it has become clear that the companies face different issues to implement corporate governance and continue financial structure decisions in a systematic manner. Therefore, following suggestions have been provided to solve the issues of both corporate governance and capital structure decisions. 

  • Engagement of Boards with workforce

In order to develop the corporate governance and capital structure decisions, the organizational boards need to engage their functions with the workforce. They can focus on the participation of different shareholders along with mentioning the Guidance on Board Effectiveness. It can assist them to apply innovative alternatives for their organization financial structure development. Furthermore, different financial analysts can support organizations by implementing multiple channels related to CG which can only be adopted through the engagement of boards with workforce.

  • Techniques for leverage measurement

Practically, leverage measurement is a process of calculating the investment strategy within organizations to follow its financial structure (Veldman & Willmott, 2016). In order to solve the CG related issues and facilitate the capital structure, the UK based companies can focus on their net profit margin. The efficiency level of their assets can also be measured by the organizations to facilitate their leverage as well as entire capital structure decisions. Depending on all the techniques, their CG can also be developed which can keep beneficial effects on organizational financial performance.

  • Implementation of polished regulations of CG and Presence of audit agreement

It can be the most important responsibility of UK based firms to implement as well as access required regulations for the CG structure. From CEO payment structure to Customer requirement development can be a part of polished regulations of CG. Right implementation of policies can also mitigate organizational circumstances related to financial standards (Based on the ideas of Shi, Connelly & Hoskisson, 2017). On the other hand, it can be recommended that the board of directors can focus on their audit agreement. With the support of this process, they can become successful to focus on the corporate governance structure for facilitating their company financial structure for proper decision making process.

  • Maintenance of right remuneration criteria for proper capital structure

As per the UK laws and regulations, it is important to focus on the remuneration criteria by depending on the financial standards. Maintenance of this thing can help to broaden the perspectives of capital structure decisions. In addition to this, long-term incentives can also be maintained by the UK based firms after maintaining right remuneration structure. All these things can become major parts of corporate governance through which their capital structure can be benefitted.

  • Recruitment of skilled financial analysts and experts of CG structure

It can also be recommended for the organizations to recruit skilled financial analysts and experts of CG knowledge to develop both the CG structure and capital structure decisions. With this type of selection, the management of different organizations can be successful to gather important financial information as per their requirements. Moreover, the financial analysts can help them by delivering required investment decisions. Practically, the financial analysts have the power to forecast economic conditions of business (Shi, Connelly & Hoskisson, 2017). Therefore, the recruitment process can support the UK based companies in a proper manner. Finally, the entire selection and recruitment process can assist to mitigate risks related to CG structure for increasing the efficiency of the capital structure decisions of the organizations.

Figure 5.3: Proposed Recommendations

(Source: Created by the learner)

5.4 Future scope 

Depending on the above description, it can be said that the present study has opened a gate for the future research by informing regarding the effectiveness of the corporate governance on capital structure decisions. The study has shown the benefits of CG only for the organizational capital structure decisions. Along with this, it has focused on the different financial performance of companies which have become examples for implementing CG in an appropriate manner. Therefore, it can help the future research by discussing the actual impacts of CG in UK based companies.

It can also be mentioned that the current research has gained information from secondary sources for which practical data has not been gathered. However, in future study, researcher can take support from the primary sources through which both the reliability and validity can be increased in a proper manner. Finally, it can be said that the researcher has focused on the effects of CG on capital structure decisions; however, the future researcher can focus on the impacts of right capital structure decisions that also make the corporate governance and its potential elements.




Appendix 1: Importance of Capital Structure

(Source: As per the ideas of Setyawan, 2015)

Appendix 2: Reflection based on the entire research

In order to complete the first chapter, I have focused on the research aim, objectives, rationale and questions. It has helped me to know the purpose of the study along with major issues faced by the UK based companies in time of implementing the corporate governance for solving issues related to capital structure decisions. The literature review section has also assisted me to know the effects of CG on financial structure and different policies to upgrade its structure. In time of conducting the research, I have collected information from several secondary sources such as books, online articles, books and others. In such case, I have faced problems as many journals have not been accessed due to lack of knowledge in financial terms. 

On the other hand, I have depended on the thematic analysis processes that have helped me to know different aspects of CG and its influences on organizational financial performance. As per my ideas, lack of primary data has hindered my study as it has huge reliability. However, I have not conducted survey and interview for which practicality can be hampered. Additionally, it has opened a scope for future researcher to work with the similar topic to broaden its perspectives. Finally, I have provided recommendations for developing the CG of UK based firms in order to bring changes in its capital structure decisions. Eventually, it has increased my knowledge and helped me to reach to an ultimate conclusion.

Appendix 3: Tesla’s uncontrolled investments


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