Corporate governance has become a popular topic in the international scene. The recent financial scandals (Enron, Parmalat, Tyco, and WorldCom) have increased the interest on the relationship between Corporate Governance and performance, due to its apparent importance for the economic health of companies and its effect on society in general. The paper aims to verify a possible relationship between the corporate governance of Italian listed companies and their financial performance. Creating a quality index for corporate governance, called CGQI, we will try to understand if a good corporate governance can lead to better firm results. The target population is composed of all Italian companies listed on the Italian Stock Exchange, in the year 2012. The cross-sectional regression highlights two important results: the negative correlation between Tobin’s q and CGQI, and the positive correlation between Return on Equity and CGQI. It is possible to extend the analysis both temporally and spatially, with a comparison between different countries, considering that our index is constructed on the basis of corporate governance guidelines of different countries

This paper examines empirically the announcement effect of commercial corporate governance ratings on share returns. Rating downgrades by Institutional Shareholder Services (ISS) are associated with negative returns of –1.14% over a 3-day announcement window. The returns are highly correlated with the proprietary analysis of ISS and are decreasing in agency costs, consistent with ratings providing independent information on underlying corporate governance quality. We thus show that the influence and impact of ISS extends beyond proxy recommendations and subsequent voting outcomes. Our findings contrast with the insignificant price impact of Daines, Gow, and Larcker (2010), whose analysis we replicate and successfully reconcile to ours by pooling upgrades and downgrades together.

This paper examines empirically the announcement effect of commercial corporate governance ratings on share returns. Rating downgrades by Institutional Shareholder Services (ISS) are associated with negative returns of -1.14% over a 3-day announcement window. The returns are highly correlated with the proprietary analysis of ISS and are decreasing in agency costs, consistent with ratings providing independent information on underlying corporate governance quality. We thus show that the influence and impact of ISS extends beyond proxy recommendations and subsequent voting outcomes. Our findings contrast with the insignificant price impact of Daines, Gow, and Larcker (2010), whose analysis we replicate and successfully reconcile to ours by differentiating rating upgrades from downgrades