Corporate Governance Ratings and Firm Performance

Ertugrul, Mine; Hegde, Shantaram P.

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Corporate Governance Ratings and Firm Performance

Financial Management, Vol. 38, No. 1, pp. 139-60, Spring 2009

32 Pages Posted: 5 Apr 2010 Last revised: 27 Jan 2015

See all articles by Mine Ertugrul

Shantaram P. Hegde

University of Connecticut- Finance Department

Date Written: Spring 2009

Abstract

We examine the corporate governance ratings provided by three premier US rating agencies (The Corporate Library, Institutional Shareholder Services, and Governance Metrics International) and find that summary scores are generally poor predictors of primary and secondary measures of future firm performance. However, some component sub-ratings that focus on the eight key dimensions of dynamic governance structures provide more positive and reliable evidence of their information content in predicting the multiple dimensions of firm performance. These results reflect the recent observations by academic researchers and money managers that it is extremely difficult to distill all of the complex governance mechanisms into a single integrated, yet informative overall score.

Keywords: Corporate governance ratings, firm performance, commercial governance ratings

JEL Classification: G3

Suggested Citation: Suggested Citation

Ertugrul, Mine and Hegde, Shantaram P., Corporate Governance Ratings and Firm Performance (Spring 2009). Financial Management, Vol. 38, No. 1, pp. 139-60, Spring 2009, Available at SSRN: https://ssrn.com/abstract=1583529