The Effect of Corporate Governance on Firm’s Profitability: Evidence from London Stock EX-CHANGE
Corporate governance mechanisms are one of most important factors affecting firms’ performance because of conflicts of interest among managers and shareholders. The aim of this paper is to determine to what extent corporate governance mechanisms affect firms' profitability. To this purpose, data was collected from the largest 156 publicly-traded companies from manufacturing (40 companies) and non-manufacturing (116 compa-nies) in England and Wales for the year 2018. Tobin's Q ratio and Return on Assets (ROA) have been selected as dependent variables which are widely used as measurements of firms’ performance. Corporate governance mechan-ism is the independent variable composed of eight dimensions namely Chief Executive Officer Tenure, Meetings of the Audit Committee, Firm Size, Board Size, the percentage of Non-executive directors in board committee and In-dustrial Classification. After using cross-sectional analysis and employing regression analysis in SPSS 22, it has been found that CEO Tenure has a very small influence on firm performance. However, CEO Tenure has no effect on firm profitability. In addition, Audit Committee Meetings, Board Size and percentage of Non-executive directors in board committee have positive impacts on firm performance, even if using Tobin's Q ratio or ROA as a measure-ment of firm performance. This study proved that increasing the number of directors will increase the firm's profita-bility and accurate regulations of Britain's financial system have reduced the imposition of personal interest on the public interest.