DIRECTORS OWNERSHIP AND THE PERFORMANCE OF SMALL AND MEDIUM-SIZED FIRMS IN THE UK

The primary purpose of this paper is to examine the relationship betwe en firm performance and the proportion of shares owned by directors fo r a sample of small and medium sized companies in the U.K. The paper a lso examines, however, the impact of organisational form on firm perfo rmance. The results suggest that, in contrast to the majority of large firm studies on the subject, a curvilinear relationship is found to e xist between firm performance and the percentage of equity held by the board of directors. The return on assets of firms is found to increas e as director ownership increases up to a maximum at 68.2% of ownershi p, after which it then decreases as director ownership approaches 100% of equity. In addition, the results suggest that firms whose director s are more highly remunerated and who hold directorships in other comp anies are significantly more profitable. Furthermore, firms in which t he owners perceive present management practices to be lacking in struc ture are found to have significantly lower performance.