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The impact of external corporate governance disclosure on the

financial performance of large retail grocers in the UK


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Table of Contents
Chapter 1: Introduction....................................................................................................................5
ac!ground of "tud#...................................................................................................................5
Pro$lem %ormulation...................................................................................................................&
Conse'uences of Pro$lems..........................................................................................................(
)esearch *$+ectives...................................................................................................................1,
"ignificance of "tud#.................................................................................................................1,
Chapter -: .iterature )evie/ and Theoretical %rame/or! of the "tud#.......................................11
Com$ined Code..........................................................................................................................11
"ar$anes *xle# 0ct....................................................................................................................11
0genc# Theor#...........................................................................................................................12
"ta!eholders Theor#...................................................................................................................13
)esource dependenc# Theor#....................................................................................................1&
Chapter 4: )esearch 5esign and 6ethodolog#.............................................................................-,
)esearch 6ethodolog#..............................................................................................................-,
)esearch setting and )espondent selection...............................................................................-1
5ata validit# and relia$ilit#........................................................................................................--
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7thical issues..............................................................................................................................-4
Chapter 1: %ield/or! and 5ata Collection....................................................................................-4
Primar# research........................................................................................................................-1
"econdar# research....................................................................................................................-2
Chapter 5: 0nal#sis and %indings..................................................................................................4,
%inancial performance anal#sis..................................................................................................4,
)evenue 0nal#sis...................................................................................................................4,
8ross 6argin and Profit anal#sis...........................................................................................41
*perating 6argin and *perating Profit anal#sis...................................................................4-
Ke# )atio 0nal#sis................................................................................................................41
Corporate responsi$ilit# and compliance...................................................................................1,
%inancial transparenc# and information disclosure...................................................................1-
Chapter 2: 5iscussion and Interpretation of %indings...................................................................11
Three areas of Corporate 8overnance and its impact on financial performance indicators......11
The trend of recession of the large UK 8rocers for the past four #ears....................................15
Impact on ritish econom# and consumers...........................................................................13
Impact on food and $everage consumption...........................................................................13
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Private la$el success in UK........................................................................................................1&
Chapter 3: Conclusion and )ecommendations and )eflections....................................................1(
)eferences......................................................................................................................................5-
i$liograph#..................................................................................................................................5(
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Chapter 1: Introduction
The glo$al financial $ac!ground is rapidl# changing. %irms around the /orld are follo/ing
various s#stems in order to esta$lish financial sta$ilit#. Corporate 8overnance is one of the most
important financial management discipline practices that control and direct the firms
internationall#. It is a s#stem /hich involves mar!et mechanisms9 relationship $et/een the
organi:ation;s management9 shareholders9 sta!eholders and regulator# of the corporation
<.arc!er and Ta#an9 -,119 p.-(,=. Corporate governance can $e $riefl# defined as >the s#stem of
la/ /hich controls and directs the corporations /ith the help of external and internal corporate
structures to monitor 6anagement;s action? <"ison9 -,,&9 p.134=. The o$+ective of the stud# is to
reveal the impact of external corporate governance on the financial performance of leading retail
grocers in UK. In order to achieve o$+ective9 the stud# covers the literature revie/ and
theoretical frame/or! of the topic. )esearch design has $een done /ith the intention of selecting
appropriate methodolog# and data collection anal#sis. 6oreover the data anal#sis /ill help to get
the findings of the pro+ect. 0fter interpreting the research findings9 finall# the stud# ends /ith
conclusion9 recommendations and reflections.
Background of Study
In financial studies there is an interesting 'uestion arises9 /hether firms are getting high mar!et
values $# appl#ing corporate governance or not. Corporate governance pla#s a !e# role in
macroeconomic sta$ilit# of a firm. It provides a health# environment for economic gro/th and
societ# /elfare. 0s a result the companies give foremost attention to this issue at the micro and
macroeconomic level. Corporate governance is a set of relationship $et/een the $oard mem$ers9
shareholders and sta!eholders of an# compan# <"olomon9 -,,39 p.-&,=. 6oreover it provides a
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frame/or! through /hich firms; o$+ectives are set. Corporate governance helps to achieve the
o$+ectives of the companies. 6oreover it monitors the performance /hich is determined.
7ffective corporate governance ma# provide valua$le incentives to the management of the
companies. # the corporate governance practices the companies can promote their financial
transparenc#9 sta$ilit#9 accounta$ilit# and fairness <arton9 @e/ell and Ailson9 -,,-9 p.-2(=.
Corporate governance also ela$orates the interaction $et/een the $oard mem$ers9 shareholders
and sta!eholders in order to trac! the financial performance of an organi:ation. Barious studies
have esta$lished the health# relationship $et/een inconsistent of organi:ation performance and
interest. 7xternal governance factors help the companies to do effective governance practices.
The la/s and regulations and ta!eover mechanism are the external environmental factors /hich
impacts on the firm;s performance /hich enforce the rights of sta!eholders and shareholders
<6c8ee9 -,,&9 p.31=.
The inade'uate corporate governance practices ma# create some ris! factors. If an# firm is not
performing up to the expectation level then the investors ma# drasticall# discount the mar!et
value of the firm;s shares <Con!lin9 -,1,9 p.11(=. 0ccording to the accounting standards
investors /ho used to invest in various firms9 are used to hold $oard and management of the
compan# accounta$le.
Corporate governance of high 'ualit# /ill help the companies to perform /ell for a longCterm
period. 5ue to the high 'ualit# of corporate governance practices $# UK9 investors are
influenced to invest in UK mar!et. Corporate governance code of UK /as formed in the #ear
1((- in order to do the $etter $oardroom practices /hich influence the investors to invest more.
The stud# deals /ith the impact of external corporate governance on the financial performances
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of the leading retail grocers in UK. 6orrison;s is a reno/ned $rand in this sector. The $oard of
6orrison;s has prepared the corporate governance report $# the help of corporate governance
code of UK /hich is issued in the #ear -,1, $# the financial reporting council <rian %inch9
-,119 p.111=.
The $oard of 6orrison;s is comprised of t/o executive directors9 four nonCexecutive directors
and a nonCexecutive chairman. 0ccording to the corporate governance report9 performance of
committees9 $oard and directors are regularl# appraised. In addition the training session of $oard
of the compan# is ma+orl# presented $# the external advisors. The evaluation of training session
has covered the aspects li!e dut# of the directors and the 0udit process development. 6oreover
for strateg# setting and approving the $oard of 6orrison;s is ver# much responsi$le <6orrisions9
-,14=.
In terms of Tesco the $oard of the compan# has a /ellCesta$lished recompense committee. 0
compliance committee has also $een esta$lished $# the $oard of Tesco in order to discharges the
o$ligations to sta# a/a# from the criminal and civil lia$ilit#. The $oard of the compan# ensured
that group or individual can dominate the decision ma!ing process in order to maintain the
transparenc# of the financial position of compan# as it is their responsi$ilit# to approve all the
financial statements9 important ac'uisitions9 fixing expenditure authori:ation level9 ris!
management9 treasur# policies 9 corporate social responsi$ilities and governance policies
<Icmrindia9 -,1-=.
The glo$al financial recession has affected on the financial performance of the leading retail
groceries in UK /hich are listed in .ondon stoc! exchange. Under the distress circumstances
fe/ retail grocers in UK /ere a$le to sta$ili:e their $usiness due to professional corporate
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practices <5i+!man9 -,1,9 p.1,=. It is important to disclose the financial performance of those
companies for last five #ears as man# companies are affected $adl# $# the financial recession
/hich happened five #ears $efore. The purpose of the stud# is to reveal the impact of external
corporate governance exposD on the financial performance of leading grocer# retailers in UK.
Problem Formulation
Corporate governance;s impact on compan#;s financial performance is glo$all# an important
issue. The last glo$al financial distress $adl# affected on the performance of leading grocer#
retailers in UK. The !e# o$+ective of the stud# is /hether the external environmental factors can
determine the performance of leading retail grosser in UK or not. The external environmental
factors are the independent varia$les such as 7arning per "hare <7P"=9 5ividends per "hare
<5P"=9 .i'uidit# )atio <.)=9 usiness )is! <)= .everage <.B=9 and )eturn on 0sset <)*0=
/hich /ill help to reveal the financial performance of a compan#. Corporate governance at a
$asic level refers the concept of decision ma!ing $# the $oard mem$ers9 sta!eholders and
shareholders of a compan# <hatia9 -,,&9 p.1&3=. The main pro$lem ma# arise due to inade'uate
corporate governance practices such as accounting failure9 increase of unethical issues and
disclosure of /rong financial information of firms.
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The research /or! is tr#ing to uncover the ans/ers of follo/ing aspects:
The effect of external corporate governance on the firm value of large retail grocers in
UK.
The effect of external corporate governance on performance indicator of the large retail
grosser in UK.
Consequences of Problems
There are some limitations of corporate governance practices. Inade'uate corporate governance
ma# lead to formulate and implement of poor strateg# $# /hich the compan# can struggle to
fulfil the ethical and economical responsi$ilities to sta!eholders including the emplo#ees and
shareholders of that particular compan# <5oc9 -,1-=.
5ue to inade'uate corporate governance Practices Compan# do the unethical practices in order
to maintain the financial sta$ilit#. 6oreover the unethical issues /ill drive to separation of
control and o/nership of the firm. 6oreover these ma# lead the agenc# pro$lem $# /hich
managers o/n the incentives to $enefit onl# themselves at the expense of sta!eholders and
shareholders for the compan#. These unethical issues /ill increase the selfC serving $ehaviour of
the top management of compan#. It is evidenced that in man# areas $oard of compan# has fail to
do their +o$s in financial distress circumstances. Therefore the companies tend to ta!e unethical
step to provide /rong financial information. The accurate corporate governance practices can
reveal the financial performance of a compan# <oatright9 -,1,9 p.(5=.
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esearch !b"ecti#es
ased on $ac!ground of stud# and pro$lem formulation9 the stud# revolves around four ma+or
o$+ectives.
Identification of states and codes for corporate governance.
The purpose of corporate governance.
Eo/ the corporate governance is implemented in large retail grosser in UK.
6ost importantl# the evaluation of corporate governance;s impact on the financial
performances of the companies.
Significance of Study
The stud# gives facts9 /hether corporate governance is increasing the firms; value or not. The
external factors can significantl# disclose the performance and value of the large retail grosser in
UK. It /ill highlight the financial performance of the companies. @o/ the stud# /ill $e follo/ed
$# the literature revie/ and theoretical frame/or! in order to evaluate the research pro$lems.
The literature revie/ is follo/ed $# research design to do the methodolog# and data anal#sis for
the stud#. The data anal#sis area /ill help to get the findings of the pro+ect. 0fter interpretation
of findings the stud# /ill reveal the conclusion9 recommendations and reflections.
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Chapter $: %iterature e#ie& and Theoretical Frame&ork of the Study
Corporate governance is the standard set of principles developed $# the companies to sho/ its
extent of confidence in terms of potentialit# of the compan# to maintain sustaina$le interest of
all the sta!eholders <@aidoo9 -,,-9 p.5=. 6ain o$+ective of corporate governance principles to
conduct a $usiness /ith integrit# and fairness and the $usiness should $e transparent in all
financial transactions. 8ood corporate governance refers to standard level of confidence from a
compan# through its positive commitment through corporate governance policies.
The independent present in $oard leads to high confidence of the compan# in the mar!et. It is
one of the important criteria on /hich the long term investors value a target compan# or an
institutional investment decision is made $# leading investment firms. Therefore9 companies
should have ver# clean9 transparent and o$+ective oriented corporate governance /hich /ould
help to raise fund from $oth creditors and from mar!et. There are man# researches9 studies9
reports and acts developed $# individual researchers and governmental agencies on importance
of corporate governance in $usinesses and as a part of corporate reports. T/o most important
principles of corporate governance are Com$ined Code and "ar$anes *xle# 0ct. These t/o
corporate governance principles focus on the importance of corporate governance in $usinesses
and in corporate reporting <Clar!e and ranson9 -,1-9 p.5(=.
Combined Code
Com$ined code is one of the important corporate governance codes of conduct. It /as derived
from three different report of corporate governance such as Tesco;s Corporate 8overnance9
6orrison;s corporate governance and 0"50;s corporate governance report. The main o$+ective
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of com$ined code is to ensure that companies need to follo/ a standard set of corporate
governance policies <Cress#9 Cumming and 6illan9 -,1-9 p.111=.
The $oard of directors needs to develop and maintain confidential corporate governance policies
to safeguard the interest of the sta!eholders; interests <%errell9 %raedrich and %errell9 -,1-9 p.(1=.
%or this purpose the $oard needs to have full control over the $usiness activities so that
shareholders; investment and companies; assets can generate ade'uate return for profita$ilit# of
the companies as /ell as the shareholders. The directors should conduct revie/ of effectiveness
of policies implemented at least once a #ear or if possi$le in each 'uarter. The# need to revie/
the extent of control the compan# has over compan#;s assets and total capital invested.
Internal control of the compan# includes financial9 operating9 legal compliances9 ris!
management and financial and non financial disclosure to the shareholders <Cla#man9 %ridson
and Troughton9 -,119 p.112=. The code /as divided into t/o ma+or sections. %irst are the
corporate governance principles of $est $usiness practice regarding provisions for companies and
second is $ets $usiness practice for maintaining the monetar# interest of the shareholders /ho
have invested huge amount in the compan#. Though compliance of com$ined code is not
mandator# $ut this code /as appended to the existing rules of .ondon "toc! 7xchange /hich
re'uires that the companies need to provide sufficient detailed financial and non financial
information to the shareholders <Tric!er9 -,1-9 p.13=.
The o$+ective of this polic# is that shareholders can access the extent of compliance of the
companies /here the# have invested or /illing to invest. @onCcompliance instances need to $e
+ustified to the shareholders $# the companies. %irst section of com$ined code is ver# much
comprehensive that covers the operation and composition of the $oard9 directors9 remuneration9
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and corporate relationship /ith the shareholders9 disclosure of information to the shareholders9
accounting audit and financial accounta$ilit# <.arc!er and Ta#an9 -,119 p.5&=.
The !e# fact of "ection 1 of the com$ined code is that corporate governance principles and
provisions /ill com$ined together to develop a code that /ould $e more po/erful to $e effected
and also /ould $e flexi$le enough for the companies to implement <6on!s and 6ino/9 -,1-9
p.-,(=.
"ection - of com$ined code is ver# much specific compared to "ection 1 and covers some
corporate activities li!e shareholders voting rights and evaluation of corporate governance
disclosure. Institutional investors invest on the companies on $ehalf of their shareholders the#
have responsi$ilit# to hold the companies account in /hich the# alread# invested <"mith9 -,,39
p.1,3=.
The com$ined code recommends that the companies need to maintain good relationship /ith
individual as /ell as institutional investors. The pu$lication of three reports that consolidated
into com$ined code of corporate governance in 1((& resulted ma+or change in corporate
governance policies $# the companies <6/enda9 -,,29 p.2(=. This leads to also change in their
da# to da# $usiness activit# that further resulted sustaina$le gro/th and fla/less ethical $usiness
activit# $# the UK retail grocer# firms.
Sarbanes !'ley (ct
"ar$anes *xle# 0ct -,,- is an important principle of corporate governance /hich /as
esta$lished to set enhanced standard for the corporate governance of pu$lic companies of United
"tates <8ra# and 6anson9 -,,39 p.52=. It is also !no/n as Pu$lic Compan# Investor protection
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and 0ccounting Protection 0ct. This 0ct /as developed in response to the high profile
AorldCom and 7nron scandals to protect the interest of the shareholders and other sta!eholders;
interests. "trictl# mandated of this 0ct resulted reforms in financial disclosure $# the companies
for all sta!eholders of the companies. It reduced fraudulent accounting activities /hich /as the
main o$+ective of this 0ct.
T/o main provisions of "ar$anes *xle# 0ct are "ection 4,- and "ection 1,1. "ection 4,- is a
mandate that recommend senior management to clarif# of financial reporting. "ection 1,1
recommends that auditors and top management need to have internal control on financial
reputing techni'ues and methods <Pic!ett9 -,1,9 p.1,&=. ut9 this 0ct is ver# costl# to implement
in pu$lic companies and it also maintain necessar# control on financial reporting in higher extent
that ensure an# !ind of non fraudulent financial reporting.
The impact that "ar$anesC*xle# 0ct <"*F= and particularl# its "ection 1,1 on the corporate
governance environment in the last one decade9 results ma+or change in corporate governance
policies of U" $ased companies. The author states in the $eginning of the article that the "*F
0ct has $een triumphant in averting some of the pro$lems it /as formulated to deal /ith. The
positive impact of "*F in fortif#ing the $usiness oversight has $een /idel# accepted $#
professionals in the audit industr# <"ar$anes9 -,,19 p.1&4=.
The "ar$anesC*xle# 0ct is $elieved to have un'uestiona$l# enhanced the audit 'ualit#9 though
its "ection 1,19 /hich stressed on internal control $esides the financials9 has $een /idel#
considered to $e premature. Eo/ever9 implementation of the 0ct had ensured that $usinesses
made $etter decisions and in man# cases even discovered superior competence resulting in cost
savings <8po9 -,,5=.
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In the initial stage companies had to incur higher expenses to perform extensive audits of their
internal control s#stems and conse'uentl# in the initial #ears of its implementation9 there /ere
reports of man# companies going private as the# could not afford the audits. In spite of cost
involved and the complicated audit re'uirement9 "*F has $een a$le to fortif# the function of
autonomous audit committees in terms of superior corporate governance <Kendric!9 -,,(9
p.1-1=.
"*F 0ct /as developed on the need of evaluation and declaration of corporate organi:ations;
internal control efficienc# <a!er9 .em$!e and King9 -,,(9 p.3&2=. It emphasi:es that though
"*F o$ligates a thorough evaluation of all financial reporting associated internal controls and
hence re'uires a huge amount of resources9 its positive impact on the 'ualit# of audit and
corporate governance ma!es it highl# $eneficial and a necessit# in the modern $usiness
environment. Eo/ever9 $esides evaluation of internal controls9 emphasis should $e made on
controlling securit# of the information ver# efficientl#.
The theoretical frame/or! of corporate governance is to control the mechanism of the corporate
factors. It /ill support the maximum efficient use of corporate governance <5amodaran9 -,1,9
p.1,(=. The challenges of corporate governance can help to support the interest of societ#
individual and corporation through the $asic ethical corporate practices. It /ill help the compan#
to achieve its long term strategic goal. There are various theoretical perspectives that are used to
explain the impact of corporate governance on the financial performance of the retail grocers in
UK.
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(gency Theory
The $ase of 0genc# theor# is principalCagent relationship. In modern corporate firms the
function of agenc# theor# ta!es place due to the separation of management o/nership.
0ccording to this theor# the agents are appointed to manage dail# corporate operation of firms
<Tirole9 -,1,9 p.1&3=.
0genc# theor# refers to a set of propositions to govern a modern firm that is characteri:ed $# a
large no of shareholders. The agents are $eing allo/ed $# these shareholders to manage and
control the collective capital for the purpose of future returns. 0lthough the agents ma# not o/n
shares of firm $ut can process the related competence and professional s!ills in order to manage
the corporation. 0ccording to this agenc# theor# the agents tend to achieve their o/n advantages.
6a+or of the managers are $eing motivated $# their o/n personal advantages li!e ho/ the# can
maximi:e their profit instead of thin!ing a$out the maximi:ing the /ealth of shareholders and
interest of sta!eholders. These are one of the pro$lems of agenc# theor# <"mart and 8raham9
-,1-9 p.15(=.
The prestige and po/er of controlling a po/erful organi:ation is the main motto of the managers
in this theor# if compan# practices inade'uate corporate governance /hile the o$+ective of the
compan#;s shareholder is return on investment. To overcome this pro$lem9 the shareholders of
the compan# have to monitor and control the managers /ith the help of their representatives li!e
the $oard of directors <Eill and Gones9 -,,(9 p.452=. In order to reduce agenc# pro$lem9 $etter
controlling and monitoring mechanism must $e implemented. This /ill help to guarantee that
mangers cannot ta!e a/a# all the advantages.
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Stakeholders Theory
The "ta!eholders theor# extends the narro/ focus of previous agenc# theor#. "ta!eholder;s
theor# $egins /ith an assumption that values are the ma+or aspects for doing an# $usiness
<5onaldson9 1((19 p.44=. The values /hich are created $# the managers are $eing as!ed to share
the sense. This theor# also drive the managers ho/ the# should do the $usiness.
The !e# o$+ective of this theor# is to $uild a good relationship $et/een the managers and the
sta!eholders of the compan#. The purposes of implementation of this theor# is to coCordinate and
serve the interest of various sta!eholders li!e shareholders9 emplo#ees9 creditors9 suppliers9
customers etc. a favoura$le external environment can $e created $# corporate governance $# the
sta!eholders of the compan#. 6oreover the /hole societ#9 customers as /ell as the compan# can
achieve the $enefits from this theor# <Chin#io and *lomolai#e9 -,,(9 p.3=.
0ccording to the sta!eholder;s theor# the leading companies are committed /ith the emplo#ees9
customers and suppliers. It has got great attention from earlier as researchers are a$le to identif#
the corporate entit# impact activit# over the external environment re'uiring accounta$ilit# of the
organi:ation. Eo/ to align the conflicting interest of the sta!eholders is the $iggest criticism of
this theor# <Eage9 6.9 -,,39 p.41=. It is impossi$le to treat all the sta!eholders e'uall#. 6oreover
it is impossi$le for all the sta!eholders to effectivel# s#m$oli:e in external corporate governance
recommendations $ecause it ma# /ea!en the compan# /elfare. 0nother criticism of this theor#
is that9 to +ustif# the poor financial performance managers can give excuse of sta!eholder reason.
To sum up9 the stud# /ill dra/ a concept9 ho/ the corporate governance measures the
compan#;s financial performances <6ontgomer#9 1((19 p.--4=.
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esource dependency Theory
)esource dependenc# actuall# emphasi:e on the role of $oard directors of the compan#.
0ccording to this theor#9 the main o$+ective of the $oard of the compan# is to allocate resources
to the compan# <5raft9 6urph# and Aillmott9 -,1,9 p.515=. The directors of the $oard committee
are considered the main resource to the compan#.
Barious dimensions of the directors li!e experience9 'ualification9 gender can $e seen clearl#
/hich are $ecoming important no/CaCda#. The mem$er of the $oard of directors of companies
provides s!ills9 expertise9 information and potential lin!age /ith the external environment for the
companies. 0ccording to the resource dependenc# theor# the $oard structure does rel# on the
agenc# theor# concept as it focuses on the $oard;s control function. Aithin the frame/or! of
corporate governance9 the composition of corporate $oard of companies is vital to align interest
of management and shareholders in order to provide information of controlling and monitoring
and effective decision ma!ing <ou$a!er and @gu#en9 -,1-9 p.141=. 6an# researchers in ma+or
areas al/a#s loo! to carr# out profit ma!ing compan# /ithout or /ithin corporate governance
and firm performance <urlingham9 -,,39 p.-1(=. .imited research /or! has $een done over the
nonCprofit organi:ations. 5ue to glo$al financial distress nonCprofit sector in UK is increasing.
Chapter ): esearch *esign and +ethodology
esearch +ethodology
)esearch methodolog# is the process used in conducting research to collect data and information
for conducting a research. It is one important area of a research and it represents the m#tholog#
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has $een selected for conducting a research. It includes data collection9 sample selection9
research settings9 research designing considering relevanc# and relia$ilit# of sources of
information. There are multiple t#pes of research methodologies are used $# the researchers to
conduct different researches in different areas. Three important t#pes of research methodologies
are 'uantitative research9 'ualitative research and realit# research methodolog#. 0ll these
research methodologies have !e# strengths and also /ea!nesses depend on t#pes of research and
t#pes of anal#sis needed.
,uantitati#e research
Huantitative research m#tholog# is used to measure the 'uantit#9 value and amount of all the
tangi$le parameters. Comparative anal#sis of multiple varia$les is done through comparing the
current values /ith the past values for forecasting future period. *$+ective of 'uantitative
research are different for different t#pes of research. %or example9 researches on important areas
of social science need empirical s#stematic investigation of 'uantitative parameters and
phenomena and the relationship among them. Huantitative research has some !e# o$+ectives for
/hich it is used in the researches. 6ain o$+ective is to emplo# and develop mathematical models
and anal#tical tools9 h#pothesis and theories appropriate for the phenomena. "tatistical methods
are the mostl# used in 'uantitative anal#sis.
,ualitati#e research
Hualitative research methodolog# refers to all non 'uantitative t#pes of anal#sis of the collected
data. It is one of the important research methodolog# used in most of the areas of researches.
Hualitative research consists of three main processes such as collecting9 anal#:ing and
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interpreting the collected data from the target sample. This t#pe of research is ver# much
descriptive. It is also much more su$+ective than other t#pes of research methodologies and use
different t#pes of data collection mainl# detailed secondar# research or inCdepth primar#
research. Hualitative research is open ended and explorator# in nature. If primar# research is
selected as data collection method then a small group of people are selected as target sample and
the# are intervie/ed to receive detailed information. If secondar# research is selected as data
collection methodolog#9 then information are selected from /ide ranges of authentic sources li!e
compan# /e$sites9 government portals9 and online li$raries etc.
esearch setting and espondent selection
0fter discussing t/o ma+or t#pes of data collection methods9 it can $e recommended that
secondar# research or data collection method /ould the most appropriate research techni'ues for
collecting relevant information for this stud#. This is $ecause the central argument of this stud# is
impact of corporate governance on the financial performance of the large grocers in UK. 6ost of
the information re'uired for this stud# is detailed financial statements and corporate governance
reports of Tesco9 "ains$ur# and 6orrison;s. 5etail financial information a$out these companies
is availa$le on the official /e$sites of these companies. 0part from the financial information9
companies also disclose sustaina$ilit# report /hich is also represents the detailed information of
the activities of the compan# and these are also part of corporate governance of the companies.
Therefore9 secondar# research /ould $e most appropriate for this stud# and hence secondar#
data collection method has $een selected for this stud#. The process of measurement is the
central focused area of 'uantitative research and the measurement process offer $asic connection
among the varia$les.
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*ata #alidity and reliability
0s secondar# research /ill $e most appropriate for collecting information re'uired for anal#:ing
the o$+ective of this stud#9 relia$ilit# and relevanc# of data are ver# important. Balidit# of data
refers to relevanc# of the data /ith the re'uirements of information for this stud#. 6ain research
o$+ective of this stud# is to anal#:e and identif# the impact of external corporate governance
disclosure on the financial performance of large retail grocers in the UK. To identif# the
performance of the pro+ect9 four large retailer companies have $een selected li!e T7"C*9 0"509
"0I@"U)I;" and 6*))I"*@. To evaluate the performance of these companies /ith respect
to their corporate governance9 financial statement of these companies of last five financial #ears
need to $e anal#sed. %or this purpose9 the financial figures need to $e collected from the official
/e$sites of these companies and detailed information a$out corporate governance of these
companies /ill also $e collected from compan# # /e$sites /hich are most relevant for these
t#pes of information. To stud# the literature on this research area9 empirical researches done
related to this stud# /ill $e collected from the online $oo!s and +ournals.
-thical issues
8enerall# several t#pes of ethical issues need to $e considered in data collection for conducting a
research. 7thical issues remain in $oth the case of primar# research and secondar# research. In
primar# researches ma+or issues are time and cost for collecting re'uired information from the
target samples. "urve#s in primar# researches are more resources intensive and the collecting
data directl# from the target samples are comparativel# more tough then secondar# research.
ureaucratic approval is re'uired in most of the situations for collecting data from primar#
research. *fficial approvals are $asicall# re'uired for conducting research activities in specific
-1 | P a g e
governmental and large private organi:ations. %or secondar# data collection methodolog#9
relia$ilit# of relia$ilit# or authenticit# of data is ver# much important. Therefore9 information
needs to $e ta!en from the authentic sources li!e official /e$sites of the companies and their
disclosure of financial and non financial information. 0gain9 information a$out previous
literature on a specific stud# can $e collected from the online li$raries of universities and online
$oo!s. In these /a#s different ethical issues can $e considered <."ET69 -,,(=.
Chapter .: Field&ork and *ata Collection
5ata or information re'uired for conducting a research is collected through t/o main t#pes of
data collection methods. These are primar# data collection methods and secondar# data
collection methods. Primar# research is done through ta!ing information directl# from the target
samples. "amples are the group or segment of individuals or the institutions on /hich the
research has $een conducting. In primar# data collection m#tholog#9 re'uired information are
collected from the target samples through face to face intervie/9 online intervie/9 emails etc $#
as!ing ans/ers of the 'uestioners.
Primary research
Primar# )esearch is developed through the construction of 'uestionnaires that are $oth
structured and unstructured in form. "tructured 'uestionnaire sets or CloseC7nded Huestions tend
to conduct the intervie/ $ased on an existing set of alternatives /hile *penC7nded Huestions
focus on dra/ing information from the respondents in the form of open vie/s. The *pen and
CloseC7nded set of 'uestions thus prepared can $e rendered for the intervie/ in the form of
mailers sent to the respondent groups or /here the researcher gains the help of external authorit#
-- | P a g e
to conduct direct intervie/s of the respondent groups <@#!iel9 -,,39 p.-5C-2J 8reen9 -,,,9 p.11C
14=.
The respondents are selected in the form of framing target population or samples that are ta!en in
the form of Pro$a$ilistic and @onCPro$a$ilistic methods. %or conducting the research data sets
/ould $e selected $ased on mainl# t/o categories li!e the 6anagement $od# of the retail chains
and the Customers related to the services rendered. ased on t/o categor# sets of respondent
groups the sampling method that /ould $e $est chosen holds to $e the "tratified "ampling
6ethod /here a sample of 1,, respondents /ould $e selected from different stratifications.
8aining use of "tratified )andom "ampling helps the researcher to reduce the errors related to
Pro$a$ilistic "ampling procedures. "tratified "ampling procedures focuses on selection of the
targeted samples from t/o different groups that in turn increases the chance of the mem$ers in
$eing selected for production of the target group of respondents <lac!9 -,,(9 p.--1C---J %in!9
-,,59 p.1&C1(=.
Eerein for conducting the Primar# )esearch a group of 1,, respondents are chosen from
different levels of management of top four retail chains li!e Tesco9 0"509 "ains$ur#9 6orrison;s
etc pertaining to different departments /hether $elonging to the categor# of operations or related
to customer care functions. %urther the t#pes of 'uestions that /ould $e constructed for
conducting the research /ould include $oth 'ualitative and 'uantitative sets. Hualitative research
aims to understand the impact on the $ehavioural and other nonC'uantitative parameters /hile
Huantitative research aims in gaining inferences as to 'uantitative data sets that can $e reflected
in terms of statistical graphs or can $e used for future statistical modelling <%lic!9 -,,(9 p.(,J
6c@a$$9 -,1,9 p.4-(=.
-4 | P a g e
Intervie/s conducted relating to the %ocus 8roup of respondents containing of $oth managers
and customers /ould help in the gaining of needful inferences as to the $enefits that /ould $e
gained $# retail companies in gaining alliances. The inferences gained from the respondents can
$e reflected in the form of pieCcharts /here the percentage of the respondents can $e effectivel#
mapped along different parameters. 6oreover in the process of forming of 'uestionnaires
effective monitoring /ould $e rendered such that the 'uestionnaire does not tend to gain hold of
an# personal information pertaining to the respondents. %urther the researcher needs to conduct
the intervie/ in an un$iased fashion so that the right 'ualit# of information can $e gained from
the respondent groups. The researcher needs to maintain ade'uate ethical parameters /hile
conducting the intervie/ such that the feed$ac!s gained from the respondents are not featured
against his or her /ill there$# re'uiring the researcher to ma!e the target respondent groups
understand the o$+ectives for conducting the research <Paul9 -,,&9 p.&,=.
The 'uestionnaire needs to contain 'uestion sets that move from $eing deductive than from a
generalist fashion. The narro/er the 'uestionnaires /ould $e constructed the more focused it
/ould $ecome in dra/ing potential inferences from the target mar!et. The 'uestionnaire /ould
$e essentiall# constructed on closed or structured 'uestionnaire sets such that the inferences
/ould $e reflected on a %ive Point "cale. The use of the %ive Point "cale or .i!ert "cale
approach helps the respondents to choose effectivel# from a large range of different alternatives
to effectivel# choose the right alternative tall#ing /ith their responses <Aatson9 -,119 p.32=.
Pattern of responses gained in such format /ould $e then represented in the form of pieCcharts to
render a clearer understanding of the feed$ac! gained from the larger mar!et in the course of the
research carried out <Cohen9 6anion and 6orrison9 -,,39 p.4-1C4--J eri9 -,1,9 p.12=.
-1 | P a g e
Secondary research
The secondar# research methodolog# refers to that of research methods that tends to ac'uire data
from alread# existing sources availa$le $oth in form of online data sources in the internet and
also from ph#sical li$raries. "ources availa$le from the internet range from articles9 +ournals9 and
other data sets pertaining to government and organisation sources. @o/ada#s /ith the
development and advancement of the internet technolog# gaining of data from such has $ecome
a prevalent practice for man# researchers. 8aining of large volumes of data along several
categories from the internet helps the researcher in gaining of information in a much faster
manner than from ph#sical li$raries. 6oreover it helps the researcher in saving potential research
cost that the researcher can expend to further develop and enhance the scope of the research in
future <Kumar9 -,1,9 pp.14&C14(=.
0gain the use of secondar# research acts as a potential support for data gained from primar#
sources. The data sets gained from authentic data sources li!e $oo!s and +ournals /ritten $#
eminent authors and data gained from other peer revie/ed sources tends to enhance the 'ualit#
of the research conducted <8ratton and Gones9 -,1,9 p.&=.
The researcher also does not re'uire the incorporation of an# external associate that /ould help
in retrieving needed data /hen the same is availa$le readil# in the internet or in the form of
pu$lished sources. Eence the use of "econdar# )esearch in potential research papers gains
distinct popularit# for conducting effective research. "pecific /e$sites pertaining to $oth the
compan# and also other online articles related to the field of aviation transportation /ould $e
ta!en under consideration for undergoing research in the topic concerned. These /e$sites along
-5 | P a g e
/ith other air $usiness travel sites /ould $e incorporated for gaining effective and practical
information related to retail along /ith current statistical data <)ugg and Petre9 -,,29 pp.41C4-=.
0nnual Pu$lications rendered from these different online sources can $e effectivel# used for
ma!ing ade'uate comparisons and gaining information of an# changes attri$uted in the
operational environment thereof. Gournals9 oo!s and other literar# sources li!e online articles
can $e spontaneousl# used $# the researcher in formulating different theoretical models related to
UK retail paradigm /hich then can $e effectivel# related to the topic under 'uestion. Proper
theoretical insights coupled /ith practical information gained from the different online sources
/ould help in gaining needful and effective inferences to the research 'uestions. The secondar#
research methodolog# though ta!es into consideration $oth literar# and other online sources for
deriving potential information #et such is vie/ed often $# man# people as a revie/ conducted on
the research carried out $# others <Kumar9 -,,-9 pp.&5C&2=.
*/ing to the a$ove fact through this research process counts significant importance for
conducting effective research on current and historical issues #et it demands needed
consideration in man# cases. %irstl# it must $e properl# vie/ed that data sets gained from the
larger sphere pertaining to online and ph#sical li$rar# sources $ear potential relevance to the
issue or research 'uestion for /hich the# are sought. Irrelevant or inaccurate data sets must $e
effectivel# ousted to help reduce the $urden of unused data and ineffective information.
"econdl# the period relating to the gaining of data sets must $e potentiall# evaluated to at least
provide the researcher /ith the current set of information to fulfil the research o$+ectives ta!en.
The data of the +ournals and the $oo!s ta!en into consideration must $e effectivel# evaluated to
gain hold of potential and current information to suffice the need of the research o$+ective.
-2 | P a g e
Eistorical data gained from $ac! dated and irrelevant sites onl# add to enhancing the effects of
confusing the reader and distracting attention from the research o$+ective framed earlier <Arenn9
"her/ood and )uddic!9 -,,59 pp.(3C(&=.
Gournals and oo!s thus sought must $e from authentic sites li!e 8oogle oo!s and 8oogle
"cholar "ources or from potential data$ases li!e 7"C* /here current +ournal articles related to
issues of $oth $usiness and academic interests are gained. *ver dependenc# on the secondar#
sources must $e largel# reduced for it tends to ma!e the pro+ect $ased on onl# theoretical and
historical inputs. 6oreover the use of secondar# data $eing often vie/ed $# others as summar#
of one;s previous /or! need onl# to $e gained in the inception of the research for it /ould help
the researcher in forming a potential $ac!ground for carr#ing out future primar# research
functions. %ocusing on the range of different data sources that /ould $e incorporated for gaining
effective inferences to the research 'uestion or issues are o$served to $e $oth internal and
external in nature.
Internal data sets are referred to as such that relate to the compan#;s o/n /e$site and range of
other annual reports reflecting its financial and mar!eting outloo!. "imilarl# other information
related to the products and services traded along /ith current operational status of the compan#
can $e o$tained from the concern;s internal data sets. Eo/ever the range of other data sources
pertaining to the categor# of +ournals9 $oo!s and other online articles related to the research issue
holds to $e a large plethora of external sources. These external sources need to $e evaluated in
terms of their authenticit# and relevance to the research issue for gaining needful effectiveness
<Capon and Eul$ert9 -,,39 pp.-51=.
-3 | P a g e
Eo/ever o/ing to the large availa$ilit# of secondar# information $oth along internal and
external categor# online the researcher gains o/ing to the less amount of time re'uired to $e
spend that ranges along t/o to three /ee!s time period. 0gain it is o$served from the a$ove
discussion that an effective outline of a secondar# research anal#sis incorporates essentiall# t/o
specific componentsCone related to the conceptual paradigm and the other related to the practical
paradigm. The conceptual paradigm rather focuses on the incorporation of essential theories and
models re'uired for gaining a conceptual understanding of the process in /hich research /ould
$e effectivel# conducted <6axfield and a$$ie9 -,119 pp.-42=.
It gains hold of needful theoretical insights rendered in $# authentic parties pertaining to authors
and other specialised researchers in the related field. In the second categor# the secondar#
research tool ta!es into consideration current information t#pes relating to the am$it of statistical
data. Inferences from the statistical data sets help in the effective pu$lishing of the secondar#
research ena$led in related +ournals.
Chapter /: (nalysis and Findings
Financial performance analysis
e#enue (nalysis
)evenue generated has universall# gro/n #earConC#ear for the three supermar!ets over the five
#ears under revie/.
6orrison;s gro/th /itnessed the highest gro/th comparing to "ains$ur#;s and Tesco /ith
revenues rising from K1-912-m in -,,3 to K12913(m in -,11.
-& | P a g e
"ains$ur#;s revenue gre/ at a relativel# higher rate than Tesco achieving 5.&L gro/th
comparing to Tesco;s 5.3L gro/th.
"ains$ur#;s sales intensit# has increased marginall# over the revie/ period achieving an increase
e'uivalent to 1.-L /ith an average 5.1 increase in the sales area. "ains$ur#;s sales intensit#
gro/th is /ell $elo/ the 14.4L gro/th generated $# 6orrison;s /ho continued to have the
highest sales intensit# across the revie/ period.
In contrast9 Tesco had the highest average increase 3.-L in the sales area although its sales
intensit# has declined $#
3.1L over the same period.
0ross +argin and Profit
analysis
8ross 6argin -9,,3 -9,,& -9,,( -9,1, -9,11 0verage
Tesco &.1L 3.3L 3.&L &.1L &.4L &.,L
"ains$ur#Ms 2.&L 5.2L 5.5L 5.1L 5.5L 5.&L
6orrison 5.1L 2.4L 2.4L 2.(L 3.,L 2.4L
"ains$ur#;s has displa#ed a negative trend in gross margin from 2.&L in -,,3 to 5.5L in -,11
/ith -,,& experiencing the highest fall after dropping from 2.&L in -,,3 to 5.2L in -,,&.
.i!e/ise9 Tesco has also experienced decline in gross margin from &.1L in -,,3 to 3.3L in
-,,& $ut this decline did not continue and $# -,11 it has reached &.4L /hich is slightl# higher
than -,,3.
-( | P a g e
)evenue -,,3
Km
-,11
Km
5 Iear
8ro/th
0nnual
8ro/th L
Tesco UK 4-9225 1,9113 3915- 5.3L
"ains$ur#Ms 139151 -191,- 49(51 5.&L
6orrison 1-912- 12913( 19,13 &.1L
"ales intensit#
per s' ft
-,,3 -,11 5 Iear
change
Tesco K19132 K19,(- CK&4 C3.1L
"ains$ur#Ms K19,(1 K191,1 K14 1.-L
6orrison K191&2 K19411 K15& 14.4L
In contrast9 -,,& has $een a #ear /here 6orrison;s gross margin gre/ at a higher rate than its
rivals and the other #ears generating a 1.-L increase and continued to increase this margin #ear
on #ear this to reach 3L $# -,11. This reflects the financial strateg# for 6orrison;s or delivering
progressive margin.
8ross Profit -,,3 -,,& -,,( -,1, -,11 5 Iear
change
Tesco 49124 4924, 191&5 192,3 59,2, K195(3
"ains$ur#Ms 1913- 19,,- 19,42 19,&- 1912, CK1-
6orrison;s 242 &1& (14 19,2- 1911& K51-
The ta$le a$ove indicates the decline in gross profit that that "ains$ur#;s has experienced /hile
its t/o rivals have managed to continue to gro/ their gross profits #ear on #ear /ith Tesco
ma!ing 12L gro/th over the five #ears period under revie/ and 6orrison;s generating a &,L
gro/th over the same period.
"ains$ur#;s has experienced a gross loss as discussed a$ove. .i!e/ise9 -,,& change of gross
margin decline has also reduced Tesco;s gross profit for that #ear $# K-11m.
In contrast9 6orrison;s had the highest gross profit in the #ears /ith greatest gross margin
increases particularl# -,,&.
!perating +argin and !perating Profit analysis
-,,3 -,,& -,,( -,1, -,11 0verage
Tesco 2.-L 5.(L 5.(L 2.1L 2.4L 2.1L
"ains$ur# 4.,L 4.,L 4.2L 4.2L 1.,L 4.1L
4, | P a g e
6orrison;s 4.1L 1.3L 1.2L 5.(L 5.5L 1.&L
Tesco;s operating margin demonstrated no change overall. Eo/ever9 6orrison;s operating
margin gre/ at a higher rate from 4.1L in -,,3 to 5.5L in -,11 /ith an average of 1.&L9 /hich
is lo/er than Tesco;s 2.1L average.
"ains$ur#;s gross margin exhi$ited an overall positive trend in gross margin from 4L in -,,3 to
1L in -,11 /ith an average of 4.1L gross margin9 /hich is lo/er than the average of the -
rivals.
*perating profit -,,3 -,,& -,,( -,1, -,11 5 Iear
gro/th
Tesco -921& -93(1 4912( 49153 49&11 K19124
"ains$ur#Ms 5-, 54, 234 31, &51 K441
6orrisons 1-4 21- 231 (,3 (,1 K1&1
The ta$le a$ove sho/s the operating profits for the three supermar!ets and from this ta$le /e
could see that it has universall# increased /ith #earConC#ear /ith an exception of a slight
reduction in 6orrison;s gross profit9 /hich declined from K(,3m in -,1, to K(,1m in -,11.
5espite the lo/er operating profit generated $# "ains$ur#;s mainl# due to the gross profits
"ains$ur#;s has $een a$le to control its fixed costs more efficientl# ma!ing K414m to achieve the
strateg# set /ith regard to cost savings to offset the decline in gross profits and also to offset the
increase in inflationar# rates in order to !eep prices as lo/ as possi$le.
41 | P a g e
In contrast despite the higher operating profits $# Tesco and 6orrison the# have /hich /as
predominantl# due to the higher levels of gross profits. The# have not $een a$le to control their
fixed cost /ith an over/helming increase in fixed costs for $oth of "ains$ur#;s rivals.
1ey atio (nalysis
The o$+ective of the stud# is to reveal the impact of external corporate governance on the
financial performance of leading retail grocers in UK. In order to attain the a$ove o$+ective9 four
companies have $een chosen to stud# financial reportsN Tesco9 0"509 "ains$ur#;s and
6orrison. )esearch design has $een done /ith the intention of selecting appropriate
methodolog# and data collection anal#sis. The financial ratios for the four companies are as
follo/s:
The profita$ilit# ratio aims to measure the overall performance $# o$serving the contri$ution of
gross profit to total sales volume for the period.
The gross profit margin is the sales o$taina$le to cover up general and administrative expenses
and other operating costs. The 8ross profit to sales ratio is an indicator of ho/ the management
is performing to increase the gross sales revenues for the compan# to improve the top line or
gross profit <5ra!e9 -,,(9 pp. 4C11=. It is also !no/n as the gross profit margin ratio and it is one
of the !e# indicators of performance.
4- | P a g e
The gross profit margin for T7"C* is ver# constant over the five #ears under o$servation. The
value decreased from the #ear -,,& to the #ear -,,(. This /as mostl# due to the economic crisis
of financial $rea!do/n of .ehman rothers in the #ear -,,&. The compan# ho/ever /as a$le to
regain its position in the mar!et and the results are reflected in their $alance sheet and the ratios
derived from it <T7"C*9 -,1-9 pp. &&C15-=.
"imilarl#9 The gross profit margin for "ains$ur# is also constant during the five #ears under
o$servation. The value decreased from the #ear -,,& to the #ear -,,( due to same reason
mentioned a$ove.
The gross profit margin for the 6orrison;s sho/s a 1,.- L rise from -,,& to -,,(. ut the figure
then again sta$ilised $ac! to normal.
44 | P a g e
0mong the three companies9 the gross profit margin of T7"C* is $etter than the rest as it has
higher and more sta$le values compared to others.
The return on asset is an example of profita$ilit# ratio that measures the ratio of 0nnual net
income per unit the average total asset.
The values of T7"C* reflect that its return on asset has reduced from #ear -,,& to -,,( due to
the macro factors9 $ut the compan#;s strong fundamentals helped it regain its position
consecutivel# over the #ears till -,1-.
"imilarl#9 "ains$ur#;s has sho/n improving in utili:ing its assets from the annual net income
earned for the period under o$servation.
The return on asset of 6orrison;s is ver# volatile and has sho/n great degree of fluctuation
during and after the period of glo$al crisis.
41 | P a g e
0mong the three companies9 the T7"C* is sho/ing more sta$ilit# and capacit# to generate
incomes. Their earnings help them to invest properl# and intelligentl# into their assets9 $oth fixed
and current.
The li'uidit# ratio measures compan#;s s!ill to meet its /or!ing capital re'uirements. 0n asset is
considered li'uid if it can $e transformed into cash and cash e'uivalents in short amount of time.
The current ratio and the 'uic! ratio are examples of li'uidit# ratios. The standard value should
$e at least 1 since failure to meet external commitments ma# lead to li'uidation of the compan#.
The current ratio is an indicator for the firm;s short term li'uidit# management9 hence it is also
!no/n as the /or!ing capital ratio. The t/o $asic constituents for this ratio are the current asset
and the current lia$ilities. The faster the current assets can $e converted to cash and cash
45 | P a g e
e'uivalents the easier it is for the firm to cover its current lia$ilities /ith current asset. Current
lia$ilities include $ill pa#a$le to creditors9 income tax pa#a$le9 etc. In this anal#sis /e find that
the values of current ratio for T7"C* and "ains$ur#;s sho/s a diminishing trend /hile 6orrison
sho/s a rising trend. This implies that the capacit# to cover up short term expenses of T7"C*
and "ains$ur# has decreased over the #ears /hile the same has increased for the 6orrison.
0lternatel#9 it sho/s that availa$ilit# of the short term funds to cover up short term expenses of
6orrison grocer# is $etter than T7"C* and "ains$ur#. 0lthough9 the values is ver# high for
"ains$ur# in the #ear -,,&9 $ut it graduall# decreased $# over 15 L in the next #ear and then
$ecame more or less sta$le. The rate of fall for T7"C* is ho/ever less - L I*I.
0nother popular indicator for measuring compan#;s short term li'uidit# is the Huic!Cratio /hich
is same is current ratio except that since the inventories are not ver# li'uid as other short term
assets9 so it is su$tracted from other current assets. The rest of the formula is same as that current
ratio. It is a more conservative ratio than the former $ecause it measures the actual current asset
42 | P a g e
to lia$ilities $# eliminating the inventories. This method is /idel# accepted $# most $usiness
concerns $ecause the companies often find it harder to convert the inventor# into cash in short
time. It is more used in the automotive and realt# sectors as their current ratio /ill not reflect true
picture of the firm.
In this anal#sis /e find that for "ains$ur#;s the values actuall# dropped $# more than (1 L and
then sta$ilised graduall# ranging from 4.-, to 4.25 <"ains$ur# plc9 -,1-9 pp. 23C1-4=. The value
of T7"C* reduced at a lo/er rate from -,,& to -,,( $# 5,.1 L. The 'uic! ratio values of
6orrison in the #ear -,,& and -,,( sho/ negative values impl#ing that the compan#;s current
inventories for that period exceeded its total assets. It is $ad ne/s $ecause the compan# /as
una$le to sell its products to customers that plied up its stoc!s $ase. Eo/ever9 the compan#
pic!ed up its sales from -,,( on/ards /hen the sales of T7"C* and "ains$ur#;s fell
<6orrison;s9 -,119 pp. &(C(4=. 0mong the three companies9 the 6orrison sho/ed $etter potential
for longCterm $usiness in case of li'uidit#.
Corporate responsibility and compliance
5espite of challenges Tesco has achieved greatl# in the field of corporate responsi$ilit#. In
accordance to the corporate responsi$ilit# report it has reformulated around 2,, products in
United Kingdom to reduce the content of sugar9 salt and fats content. It has participated in nearl#
41 Communit# programs in UK to encourage responsi$le drin!ing. It has made a valua$le
contri$ution of K21.4 million in charita$le organi:ations. It has also offered education facilities to
children and adults at nominal fees. It /as also instrumental in creation of -1,,, +o$s and also
created 223 +o$s for long term unemplo#ed #ouths. It has also ta!en steps for a $etter
environment li!e it has esta$lished the first overseas :ero car$on store in C:ech )epu$lic. 0lso
43 | P a g e
during the period of glo$al recession9 Tesco has continuousl# improved production $# lo/ering
cost. Thus at tough times too Tesco continued /ith its legac# of providing safe9 good9 nutritious
and afforda$le food to its consumers.
"ains$ur#;s move to/ards corporate responsi$ilit# /as excellent and /as a/arded >Platinum
Plus? in its Corporate )esponsi$ilit# Index. "ains$ur#;s corporate responsi$ilit# strateg#
involves providing its customers /ide assortment of 'ualit# food at fair price9 pa#ing their
respective suppliers a fair price and also the# ma!e sure that their suppliers have $u#ers for their
products. It has tried its level $est to ma!e use of the natural resources li!e /ater and electricit#
more +udiciousl#.
6orrison on its part tried to achieve good results in its corporate responsi$ilit# efforts $#
enriching its product 'ualit# $# ma!ing use of more precise calorie la$elling9 reduction of trans
fats and salt content. .i!e Tesco it has made efforts to encourage responsi$le drin!ing $# putting
an age limit for alcohol consumption and supporting communit# /elfare programs related to
alcohol consumption.
0"50 corporate responsi$ilit# ta!es into consideration three primar# aspects:
PeopleC The# considers the opinions of the customers and the colleagues in ma!ing their
mar!eting strategies.
PricesC the compan# ma!es effort to deal /ith its producers9 gro/ers and customers at afforda$le
prices.
PlanetC the Compan# ta!es the initiatives of $eing more energ# efficient and ma!ing use of $etter
/aste management techni'ues.
4& | P a g e
Financial transparency and information disclosure
Tesco financial reports are prepared in accordance to the 5isclosure and Transparenc# )ules of
UK;s financial "ervice 0uthorit# /ith I0" 41 as implemented $# 7uropean Union. The
accounting policies of the current #ear are consistent /ith those of the annual report in the #ear
-,1-. The reports have $een prepared in accordance to the International )eporting "tandards. In
the current #ear -,1- Tesco has $een rated 2.5 in the scale of ,C1, for disclosure of its various
!inds of $usiness information /hich are considered important to the general pu$lic and the
investors. Tesco operates in 11 countries including UK. %or the current #ear the countr# has
disclosed the revenues on a countr# $# countr# $asis in all countries in /hich it operates. It
comprises of the financial such as data revenues9 communit# contri$utions and capital
expenditures.
6orrison tries to $e transparent in all its $usiness activities and the# do not engage themselves in
sophisticated tax planning activities. Eo/ever in the #ear -,11 the President of 6orrison /as
fined /ith K -1,,,, for not $eing a$le to notif# the mar!et on the num$er of share disposals.
Under the 5isclosure and Transparenc# norms Ken 6orrison had to notif# 6orrison
supermar!ets a$out the share disposals on fe/ occasions since he failed to do so he /as fined.
"ains$ur# pa#s a lot of attention on independence of its internal compan# and external auditors.
This has enhanced the compan#;s financial transparenc# and financial disclosure s#stem... 0part
from the mandator# disclosure "ains$ur# has made certain voluntar# disclosures /hich have lead
to gro/th in the firm;s reputation. "ains$ur#;s voluntar# disclosures are mainl# concerned /ith
four aspects namel# food9 emplo#ee environment and social aspects. Its report on -,,( has
sho/n that the compan# has made its products as health# as possi$le for the customers /ithout
4( | P a g e
increasing the price and /ithout compromising on taste and 'ualit#. "uch disclosures have
helped the compan# to increase its customer;s $ase. In has also disclosed reports on num$er of
emplo#ment opportunities; it has created for the #ouths. %or the first time in UK;s food retailing
$usiness the compan# has created a report on environment issues /here it has emphasi:ed that
reduce9 rec#cle and reuse as its core activities /ith respect to the environment. This has added
another feather to its cap $# improving its mar!et reputation. It has also pu$lished reports on
man# social issues in /hich it has activel# participated li!e the donation of sports e'uipments to
schools9 colleges etc9 and food donation to charita$le organi:ations. This has largel# helped the
compan# to paint a favoura$le picture in the consumer;s mind.
0"50 is operating in /ell regulated and transparent mar!ets for the financial products and
/or!s /ith the government regulator# $odies and industrial service providers on variet# of
issues. 0"50 $elieves in the principle of honest# and accurate recording and reporting of its
financial information such that it can ma!e sound $usiness decisions. 0ll the financial $oo!s and
accounts should accuratel# reflect financial transactions and the events. The# must $e in line
/ith the generall# accepted accounting principles and to the s#stem of internal controls existing
/ithin the compan#. The unCesta$lished and undisclosed accounts of 0"50 cannot $e used for
an# purpose.
Chapter 2: *iscussion and Interpretation of Findings
Three areas of Corporate 0o#ernance and its impact on financial performance indicators
Corporate governance is strategic organi:ational polic# /hich is 'ualitativel# evaluated thr1ough
the impact of it on ma+or dependent varia$les of it. %inancial performance is one of the most
important tangi$le parameter /hich is evaluated through 'uantitative anal#sis. Therefore9 impact
1, | P a g e
of corporate governance can $e assed 'ualitativel#. 0gain9 corporate governance is not a single a
single characteristics of a $usiness rather it covers and reflects through man# important areas of
$usinesses. Three important areas of corporate governance in $usinesses are ris! oversight
considering all sta!eholders; interest9 transparenc# and corporate social responsi$ilities.
Corporate governance is a set of strategic polic#9 standards and values through /hich a compan#
runs. These corporate governance policies are developed $# the top management9 managing
director and $oard of directors. Therefore9 the# need to focus on the three ma+or areas of
corporate governance /hich are sta!eholders; interest9 corporate social responsi$ilities and
transparenc# in financial disclosure.
0n# t#pe of $usiness al/a#s possesses some extent of ris!s and this might $e different t#pes of
ris! li!e mar!et ris!9 economic ris!9 micro economic ris! and macroeconomic ris!. 0t the same
time $usinesses also retain the financial interest of the $usiness itself and all the sta!eholders of a
$usiness /ho are directl# or indirectl# attached /ith a compan# in terms of $oth financial and
non financial matter. Therefore9 corporate governance of $usinesses li!e Tesco9 "ains$ur#9
6orrison;s and 0"50 etc has su$stantial impact on the sta!eholders; interests. These large retail
grocers also have $een designing governance structure $# focusing mainl# on the profita$ilit# of
these companies. etter corporate governance policies result sustaina$le gro/th of $usiness as
/ell as consumer trust on the $usiness /hich directl# increases revenue and profita$ilit#.
Therefore9 maintaining ris! associated /ith $usiness lead to more profita$ilit#.
0nother ma+or area of corporate governance is transparenc# in financial disclosure and financial
reporting. %inancial disclosure i.e. financial statements and also other non financial information
reflect a compan#;s financial health and efficienc#. The shareholders ma!e investment decisions
11 | P a g e
$ased on the financial disclosure and therefore9 companies need to $e ver# much transparent and
detailed oriented in pu$lishing financial information a$out the compan#. Therefore9 it is also one
important part of corporate governance and values of a $usiness.
Third important area of corporate governance is corporate social responsi$ilit#. .arge retail
companies of UK li!e Tesco9 0"509 "ains$ur#9 and 6orrison;s practice high extent of corporate
social responsi$ilities considering the return to their valua$le customers and the environment
/here the# operate. The $oard of directors of these companies are ver# much innovative in terms
planning and designing corporate social activities /hich reflect integrated corporate governance
policies of these companies.
The trend of recession of the large 31 0rocers for the past four years
)etail industr# is one of the largest industries in Uni&ted Kingdom. 8lo$al recession during -,,3
to -,,( has su$stantial impact on the overall retail industr# across the /orld. UK retail mar!et
has also $een suffered from sudden decline of the consumer spending in retail products. UK
econom# is the second most affected econom# after U"0 during recent glo$al financial crisis. It
is most affective economic scenario in last five #ears in UK econom# and the econom# still has
$een suffering from the strains of the last glo$al economic slo/do/n. In the last #ear i.e. in
-,1-9 retail gro/th /as onl# 1.-L and it /as the third lo/est in the histor# retail industr# of UK
in last 1, #ears. Total sale of nonCfood categories of retail goods has $een declined $# (.5
$illion since the $eginning of glo$al recession of -,,3 C -,,(.
Tesco /hich is one of the leading retail grocers in UK have $een facing tough competition from
small and medium level grocer# shops and departmental stores as these t#pes of $usinesses have
opened more stores during this period of time. 5emand of household product has $een declined
1- | P a g e
ver# much and ma+or suppliers of these goods to the large retail supermar!ets have $een facing
loss in their $usinesses. Consumer $u#ing trend of retail goods has $een changing from
extravagance to austerit#. 8ro/th of ph#sical retail space of all retail companies li!e Tesco9
0"509 6orrison9 "ains$ur# has $een declined as online retail sales has $een increasing. )apid
gro/th of online sales has $een identified in last five #ears and in this /a# companies have
$ecome more cost effective.
Technolog# development has fuelled the dramatic shift of ph#sical retail space to online retail
mar!et. The retail grocer companies have $ecome more cost effective and the# have $een
focusing on contusing cost reduction especiall# the operating costs. Therefore9 along /ith the
consumers the companies also encouraging the people of this developed mar!et to $ecome active
online consumer of retail goods. *ver the past 15 to -, #ears i.e. till $eginning of last /orld/ide
recession in -,,39 gro/th in retail expenditure of the consumer of United Kingdom /as
exceptionall# strong. It /as mainl# $ecause of ma+or gro/th in non food retail goods9 high
$orro/ing9 lo/ interest rates and lo/ inflation. tu the mar!eters have noticed sudden decline in
this sustaina$le gro/th in the demand of non food retail product. Therefore an unexceptional
trend of retail development and increase in retail mar!et si:e has suddenl# started dramatic
decline $ecause people started saving more than earlier in fear of losing +o$ and lo/ opportunit#
of earning in near future.
Impact on British economy and consumers
The UK economic gro/th remains uncertain in the /a!e of glo$al recession and the econom#
has not come out totall# from the affects of this glo$al economical decline. Pu$lic finances in
this mar!er in dire shape as /ell as overall financial sector still remaining fragile. 0part from
14 | P a g e
these9 there still remains ma+or macro economical ris! of rene/ed /ea!ling of the economic
sta$ilit# of the countr# due to gro/th of fiscal pressure and stimulus fades. The consumers9 for
the time $eing have decided to stop unnecessar# shopping and sta#ed $ac! to ver# much
conservative /a# of living in terms of savings versus expenditure. Therefore9 no/ the real
scenario of retail mar!et has $een clearer than in earlier fast rising discount $ased sales mainl# in
the discount stores of the ma+or cities in the countr#.
Impact on food and be#erage consumption
In the first fe/ of -,
th
centur#9 it has $een seen that the ritish consumers $ecame increasingl#
see! out of convenient9 health# and ethnic foods along /ith 'uic! meal and read# to eat foods
/ith fre'uentl# changing ingredients and single snac! portions. This scenario of UK food and
$everage mar!et /as due to strong innovation of regional food manufacturer. This scenario has
also $ecome one of the ma+or threats of the traditional restaurant chains in this mar!et /hich
/ere ver# much popular for their traditional foods in the 1(
th
centur#. )ecent trend in UK food
and $everage mar!et is that consumers have $een allocating to preservation of environment. %or
this purpose9 locali:ation of food product has gained high importance. Consumers are also tr#ing
to cut do/n expenses of food consumptions $# shifting from expensive glo$al $rands to local
food and $everage manufacturers. This trend in food and $everage mar!et of UK has $een
noticed after the recession.
Therefore9 overall mar!et si:e of food and $everage mar!et of UK has $een decline due to the
comparativel# lo/ priced food products of the domestic mar!eters though demand in this mar!et
has remains same. "till fe/ environmental factors have $een affecting the food and $everage
industr# of United Kingdom. These are li!e rising unemplo#ment9 household $udget and recent
11 | P a g e
inflationar# economic environment and $an!ing crisis. Though economic slo/do/n affected the
food and $everage industr# of UK still volume sales of food and $everage has $een rising and
currentl# it is in a good stage.
Pri#ate label success in 31
Prior to 8lo$al %inancial Crisis of -,,3C-,,(9 UK /as recognised as the largest potential mar!et
of private la$el consumer goods. ut9 after the recession there have $een ma+or changes in this
mar!et. .arge retail chains of UK9 li!e Tesco9 "ains$ur#9 6orrison;s and 0"50 have started
investment in private level products. These companies are targeting different categories of
segments of people in this mar!et according to the taste and preferences of them. Therefore9 the#
have found out man# niche segments of people and focus on their actual need and preferences.
6oreover these retailers also started private la$el aims to supporting ethical trading fair trade and
organic la$els. *verall9 current economic indicator of UK sho/s /ea! consumer confidence in
terms of average expenditure gro/th especiall# of food and $everage products.
Chapter 4: Conclusion and ecommendations and eflections
The main o$+ective of this stud# /as to anal#se and discuss the impact of external corporate
governance disclosure on the financial performance of large retail grocers in the UK. %our
leading retail chain of UK i.e. Tesco9 0"509 "alis$ur#9 6orrison;s have $een ta!en as sample for
this descriptive stud#. 7mpirical studies on this important area have $een developed and there are
also man# codes have $een developed to standardise the corporate governance practice $# the
organi:ation.
15 | P a g e
This important part of $usiness is highl# practiced and follo/ed in the retail industr# of UK and
the selected sample companies are recognised for their corporate governance policies. There are
t/o main varia$les in this stud#. *ne is corporate governance and another is financial
performance and profita$ilit# of compan#. Corporate governance is the independent varia$le and
financial performance is the dependent varia$le /hich su$stantiall# depends on the corporate
governance structure of a compan#. %rom the literature revie/9 it has $een found out that man#
codes of corporate governance have $een developed /ith a main motive to enhance the financial
performance of the compan#.
0mong the three ma+or t#pes of research methodolog#9 'ualitative research methodolog# has
$een selected for this stud# as it is a descriptive and o$+ective of the stud# re'uires an affirmative
conclusion. 0gain for data collection method9 secondar# data have provided almost all the
information re'uired for this stud#. This method /as selected after anal#sing the strengths9
/ea!ness9 actual outcomes and o$+ective of $oth primar# and secondar# data collection method.
Tesco is the mar!et leader of grocer# mar!et in UK. Currentl# the compan# holds around 4,L
mar!et share in grocer# mar!et. Though it is the leading supermar!et compan# in UK $ut it has
$een facing high competition from other large supermar!ets mainl# 0"509 "ims$ur# and
6orrison. 0mong these three ma+or competitors of Tesco9 "ains$ur#;s is the toughest competitor
of Tesco. "ains$ur#;s is the third largest supermar!et chain in UK. "ains$ur#;s "upermar!et
.imited is the parent compan# of "ains$ur#;s.
To conduct an inCdepth comparative anal#sis of Tesco /ith its main competitor "ains$ur#;s9
similarities and !e# variances need to $e identified in t/o ma+or areas of these t/o $usinesses.
These are $usiness model and !e# financial indicators. Ke# financial indicators are the important
12 | P a g e
financial parameters of income statement. There are five core $usiness values that reflect
"ains$ur#;s $usiness model /hereas Tesco;s $usiness model is reflected $# four core $usiness
activates of the compan#. These are insight9 $u#9 move and sell. @o/9 comparative anal#sis of
$usiness model of these t/o companies /ill $e done.
*ffering good food at fair price is centre of "ains$ur#;s offering to its customers. To get out of
mar!et competition in terms of price competitiveness9 "ains$ur# continuing to focus on its o/n
$rands through it can have full control on product 'ualit# and price. *n the other side9 Tesco has
high focus on $oth 'ualit# and price of the products as /ell as profita$ilit# to the shareholders
/ith good margin on sells. oth the companies have similar t#pes of distri$ution channels i.e.
large supermar!ets as /ell as online sales platform. *nline sales of $oth of these companies have
$een gro/ing since last fe/ #ears. 0 ma+or difference in $usiness model of these t/o companies
is "ains$ur#;s high involvement in propert# $usiness /hereas Tesco is not involved in this !ind
of $usiness. oth of thee $usi&ness also have focus on food as /ell as non food $usinesses. 0s
"ains$ur#;s is activel# operating in the propert# sector9 therefore9 increasing its super mar!et
space has $ecome easier than its core competitors Tesco.
13 | P a g e
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)elationships.pdf. P0ccessed on %e$ruar# 1-9 -,14Q.
o/hill9 . <-,,&=. Business %lanning and Control: #ntegrating Accounting+ trateg"+ and
%eo!le. Gohn Aile# and "ons.
Cro/ther9 ". <-,11=. cottish Government ta1 threat to ainsbur"<s !lans. P*nlineQ. 0vaila$le at:
http:SSlocal.stv.tvSelginSne/sS121&CscottishCgovernmentCtaxCthreatCtoCsains$ur#sCplansS.
P0ccessed on %e$ruar# 1-9 -,14Q.
5atamonitor9 -,,1. $esco %7C.PPdfQ. 0vaila$le at:
http:SSpeople.exeter.ac.u!S/l-,4S706,11S6aterialsS.ectureL-,1ST7"C*L-,Compan#
L-,Profile.pdf. P0ccessed on %e$ruar# 1-9 -,14Q.
%inch9 G. <-,1,=. ainsbur"<s !oor sales figures come 'ith recession 'arning. P*nlineQ. 0vaila$le
at: http:SS///.guardian.co.u!S$usinessS-,1,SmarS-1Ssains$ur#CpoorCsalesCgro/th. P0ccessed on
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%ridson9 6." O 0lvare:9 %9 -,11. Financial tatement Anal"sis. @e/ Gerse#: Gohn Aile# O
"ons9 Inc.
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I85 <-,11=. ustainabilit". P*nlineQ. 0vaila$le at: http:SS///.igd.comSindex.aspX
idY1OfidY1OsidY5. P0ccessed on %e$ruar# 1-9 -,14Q.
I85. <-,11=. 9; grocer" &etailing. P*nlineQ. 0vaila$le at: http:SS///.igd.comSindex.aspX
idY1OfidY1OsidY3OtidY-2OfolidY,OcidY(1W4. P0ccessed on %e$ruar# 1-9 -,14Q.
I6)8. <@o 5ate=. :elcome to #M&G. P*nlineQ. 0vaila$le at:
http:SS///.imrg.orgSI6)8Ae$"iteSuserSpagesShomepage.aspx. P0ccessed on %e$ruar# 1-9
-,14Q.
G "ains$ur# Plc. <-,1,=. Annual re!ort and financial statements 4565. PPdfQ. 0vaila$le at:
http:SS///.+Csains$ur#.co.u!SmediaS1313(3Sar-,1,Treport.pdf. P0ccessed on %e$ruar# 1-9
-,14Q.
G "ains$ur# Plc. <-,11=. Annual re!ort and financial statements 4566. PPdfQ. 0vaila$le at:
http:SS///.+Csains$ur#.co.u!SmediaS131&14Sar-,11Treport.pdf. P0ccessed on %e$ruar# 1-9
-,14Q.
.i9 7. <-,,&=. u!ermarket Chains and Grocer" Market in the 9;. PPdfQ. 0vaila$le at:
http:SS///.cei$s.eduS$mtSimagesS-,1,,41(S-4311.pdf. P0ccessed on %e$ruar# 1-9 -,14Q.
Paul9 5. et.al. <-,1,=. Business Anal"sis. C"9 the Chartered Institute.
)o$ertson9 ".9 -,1-. &etail sales monitor Februar" 4564: ales revival remains illusor".
P*nlineQ. 0vaila$le at:http:SS///.$rc.org.u!S$rcTne/sTdetail.aspXidY-122. P0ccessed on
%e$ruar# 1-9 -,14Q.
52 | P a g e
"ains$ur#;s. <@o 5ate=. $echnolog". P*nlineQ. 0vaila$le at:
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"ilverthorne9 ".9 -,1,.$esco<s tumble into the 9 Market.P*nlineQ. 0vaila$le
at:http:SSh$s/!.h$s.eduSitemS212-.html. P0ccessed on %e$ruar# 1-9 -,14Q.
"par!s9 P...9 -,,-. &etailing in cotland.PPdfQ. 0vaila$le at:
http:SS///.csrs.ac.u!SPu$licationsS)etailingL-,inL-,"cotlandL-,)etrospectL-,and
L-,Prospect.pdf. P0ccessed on %e$ruar# 1-9 -,14Q.
Thurau9 T.E. O Eansen9 U. <-,,,=. &elationshi! marketing: gaining com!etitive advantage
through customer satisfaction and customer retention. "pringer.
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of 0merica: iUniverse.
53 | P a g e