Do Institutional Shareholders Services (ISS) Corporate Governance Ratings Reflect a Company's Operating Performance?
Posted: 11 Sep 2006 Last revised: 14 Nov 2008
Date Written: 2008
Little is known about the relation between the actual governance rating received by a firm and the firm's performance. In this study, we examine the relation between the actual corporate governance rating received by a firm and the firm's performance during the years 2002, 2003, and 2004. We use the Institutional Shareholders Services (ISS) corporate governance quotient (CGQ) rating of a firm's corporate governance structure and analyze this rating in relation to the firm's operating performance. We compare the Institutional Shareholders Services' CGQ rating to two measures of the firm's operating performance, return on assets (ROA) and return on equity (ROE). Based upon our results, we do not find statistical evidence suggesting that the firms' operating performance is related to the firms' ISS corporate governance rating.
Keywords: Corporate governance, firm operating performance, governance rating, return on assets, return on equity
JEL Classification: G3, G34
Suggested Citation: Suggested Citation