We develop a corporate governance (CG) index based on the requirements of the combined code to examine the effect of CG on major shareholdings of listed non-financial firms in the United Kingdom from 2005 to 2009. We also investigate whether this relationship has changed during the recent financial crisis. In particular, we test the effect of both the level and changes in CG on both the level and changes in total and alternative types of major shareholdings. The results from panel data regressions show that, for the whole studied period, there is a significant positive relationship between CG and total major shareholdings. However, there is no evidence to suggest that changes in CG affect changes in major shareholdings. We also find that “board composition and independence” is the only CG sub-index that affects total major shareholdings. Interestingly, we find that different sub-indices of CG appear to affect different types of major shareholdings. Our results also provide evidence that the relationship between CG and major shareholdings changes from insignificant before the financial crisis to significant during the financial crisis, suggesting that major shareholders believe that CG was particularly important during times of financial trouble.
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