Last Updated Apr 9, 2008 4:25 PM EDT
- The Find: Companies with excellent corporate governance records report 18 percent higher stock returns than those with poor records.
- The Source: A new report from the Association of British Insurers
The Takeaway: Researchers at ABI studied over 600 public companies in the U.K., across every industry, and studied the links between each company's track record on governance and its financial results. The clear insight here: Companies that keep their house in order on record-keeping, board composition and management, compensation formulas and other governance issues clearly outperform those who don't -- to the tune of 18 percent higher stock returns compared to those who stray from standard governance guidelines. Among the study's other findings:
- Board balance factors in performance. Companies with more non-executive directors perform better than those with fewer, but those with too many independents saw a dip in profitability.
- Good governance lowers volatilty. Stock volatility for well-governed companies ran 9 percent lower than for poorly governed companies.
- Governance violations can hurt top performers. Companies in the top quartile of performance in terms of return on assets that had a breach of governance (known as a "red top") saw a drop of 8.6 percent in annual returns.