The purpose of this paper is to examine the extent of compliance with the governance regulatory requirements by small and medium‐sized companies (SMEs) listed on the alternative investment market (AIM).
The paper focuses on AIM‐listed companies over a period of three years (2002, 2003 and 2004) and concentrates on their extent of compliance with the corporate governance disclosure guidelines set out by the regulatory bodies. To measure the extent of disclosure, a checklist was compiled based on the Combined Code and FSA listing rules. Having reviewed the literature on large companies (as there were no studies on SMEs), a number of governance and firm structure‐specific characteristics were selected. The relationships between the level of governance disclosure and the chosen characteristics were examined in order to highlight those factors that are associated with and affect the level of governance disclosure.
On average about 50 percent of governance items required to be disclosed had been reported by AIM‐listed companies. As for large companies, there is a positive relationship between the number of non‐executive directors in governance mechanisms and the extent of disclosure. Considering that there has been a declining interest in AIM‐listed companies, the presence of more non‐executive directors is recommended, as this would ultimately mean more compliance with the governance disclosure requirements and could result in restored investor interest and confidence. The findings also indicate that SMEs are more likely to have adopted a stakeholder approach when concentrating on their governance arrangements.
The study presents evidence on governance disclosure practices of SMEs and indicates that, in spite of a less stringent regulatory regime set up within AIM, non‐executive directors, who bring in an element of independence to boards, play a significant role in elevating corporate transparency.
