Adopting Corporate Governance Code key to share price rises for AIM-firms

By: Megan Dunsby,

Shares in the top 100 companies on the Alternative Investment Market (AIM) perform better where companies have adhered to the UK Corporate Governance Code and utilised non-executive directors (NEDs).

An analysis of share price fluctuations over a three-year period suggested businesses that have a majority of NEDs on their board have an increased average share price of 22.3% per annum in contrast to businesses with a majority of executive directors who have a share price increase of 17% per annum.

The results of the research commissioned by the London-based executive search firm Edward Drummond also showed FTSE AIM 100 companies who hired a separate NED saw an average share price rise of 21% per annum against a 9% increase for businesses that did not.

Many AIM-companies recruit NEDs to boost growth as they provide business acumen, mentoring and a network of business connections and the results suggest that investors back companies that adopt this approach.

Currently AIM-listed businesses do not legally have to follow the Code unlike Main Market listed businesses which must abide by the Code or provide reasons for not conforming.

Neill Fry, director at Edward Drummond said:

“The additional level of insight and experience that is brought by having a significant NED presence seems to be having a substantial impact on share price.
“It is certainly food for thought for those companies that feel investing in corporate governance is not a priority for rapidly growing companies.”