Do Institutional Shareholders Services (ISS) Corporate Governance Ratings Reflect a Company's Operating Performance?

Posted: 11 Sep 2006 Last revised: 14 Nov 2008

See all articles by Ruth W. Epps

Ruth W. Epps

Virginia Commonwealth University - Department of Accounting

Sandra J. Cereola

James Madison University - School of Accounting; Virginia Commonwealth University (VCU) - Department of Accounting

Date Written: 2008

Abstract

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

Epps, Ruth W. and Cereola, Sandra J., Do Institutional Shareholders Services (ISS) Corporate Governance Ratings Reflect a Company's Operating Performance? (2008). Critical Perspectives on Accounting, Vol. 19, pp. 1135-1148, 2008, Available at SSRN: https://ssrn.com/abstract=929315

Ruth W. Epps (Contact Author)

Virginia Commonwealth University - Department of Accounting ( email )

301 W Main Street
Richmond, VA 23284-4000
United States

Sandra J. Cereola

James Madison University - School of Accounting ( email )

Harrisonburg, VA 22807
United States

Virginia Commonwealth University (VCU) - Department of Accounting ( email )

Richmond, VA 23284
United States

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