| Corporate governance study links bad boards to higher risk A study jointly released by Georgia State University and Institutional Shareholder Services (ISS), the provider of proxy voting and corporate governance data services, directly correlates corporate governance and company performance. The research, undertaken by Lawrence Brown, Ph.D. and Marcus Caylor of Georgia State University is the first independent academic study to clearly demonstrate the impact board composition and practices can have on company performance.
"Our findings reveal that companies with weaker corporate governance perform more poorly, are less profitable and have higher volatility than do firms with stronger corporate governance," said Georgia State's Dr. Lawrence Brown. "The average difference in annualized returns between bottom decile and top decile companies was 11.9 percent over the preceding five-year period. Board composition proved to be the most important factor." ISS's Corporate Governance Quotient (CGQ), a database and ratings service used by institutional investors as a governance-based risk assessment tool, served as a key data source for the academic research, which was conducted with the assistance of a grant from ISS. The study shows a correlation between corporate governance and stock price volatility with issuers in the bottom decile of industry-adjusted CGQ having share price volatility that is 6.20 percent above their industry-adjusted average, while those in the top decile of industry-adjusted CGQ have share price volatility that is 5.63 percent below their industry-adjusted average - a performance difference of 11.83 percent. The examination of profitability, risk and dividend payouts shows that return on investment (ROI) and return on equity (ROE) in the top decile of CGQ rated companies outperformed the bottom decile companies by 18.7 percent and 23.8 percent, while dividend payouts of companies in the top decile outperformed bottom decile companies by more than 10.4 percent. "Georgia State's findings clearly demonstrate the financial impact bad boards can have on shareholder value," said Cheryl Gustitus, senior vice president of communications at ISS. A webcast to review Georgia State's corporate governance research findings will be held February 19th at 1:00pm Eastern. Registration and call-in details are available at www.issproxy.com/study
•Date:
10th February 2004 •Region: N.America/World
•Type: Article •Topic:
Op.risk |
