Rating the Ratings: How Good are Commercial Governance Ratings?

Daines, Robert; Gow, Ian D.; Larcker, David F.

doi:10.2139/ssrn.1152093

Cited by 102 publications

(145 citation statements)

References 47 publications

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“…Under the assumptions that these indices are measuring the quality of corporate governance, and that higher quality leads to higher performance, one would expect firms with higher scores to have better future performance. This has been investigated in a paper by Daines, Gow, and Larcker (2010), who found no evidence in support of this claim.…”

Section: Using Multiple Indicators To Measure Corporate Governancementioning

confidence: 94%

What is the Relation (if any) Between a Firm’s Corporate Governance Arrangements and its Financial Performance?

Wessels¹,

Wansbeek²,

Dam³

2016

MFJ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper presents estimates from a latent variables model of the relation between corporate governance and financial performance. We use data on large US corporations to estimate the correlation, conditional on the firms' investment opportunity set, between governance and performance. We find that this correlation is statistically speaking zero. This result is consistent with the "equilibrium view" (Demsetz, 1983) in which firms optimize corporate governance arrangements subject to the constraints imposed by the investment opportunity set, such that observed corporate governance arrangements and firm performance are uncorrelated. The intuition behind this statement is that, if governance and performance were correlated, performance could be improved by making changes to the governance arrangements, which is at odds with an equilibrium situation. Terms of use: Documents inJEL-Code: C380, G340, L200, M520.

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Section: Using Multiple Indicators To Measure Corporate Governancementioning

confidence: 94%

What is the Relation (if any) Between a Firm’s Corporate Governance Arrangements and its Financial Performance?

Wessels¹,

Wansbeek²,

Dam³

2016

MFJ

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“…For instance, a series of UK corporate governance reports and codes (Cadbury, 1992;Financial Reporting Council, 2010;Greenbury, 1995;Hampel, 1998;Higgs, 2003;Turnbull, 1999;Walker, 2009) Governance Score, the GMI rating system, and the Corporate Library's Board Analyst (Barrett et al, 2004;Daines et al, 2010). All of them have drawn people's attention to internal governance affairs only, like board accountability, management responsibility and compensation, disclosure and transparency, and shareholders' rights and equal treatment.…”

Section: The Inward Mode Of Thinking In Corporate Governancementioning

confidence: 99%

Modes of Thinking in Corporate Governance: In Search of Root Causes of Governance Malfunctioning

Sun

2015

AMPROC

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This paper argues that the current two prevailing modes of thinking in corporate governance, the inward-looking and outward-looking modes of thinking, severely limit and constrain our understandings of corporate governance systems and problems and are thus unable to properly diagnose and rectify corporate governance defects and malfunctions in practice. The paper presents a new mode of thinking, i.e., the critically reflexive mode of thinking, to overcome the limitations of the current modes of thinking, such as the assumed hard boundary between the internal and external governance systems, a simplistic "either or" approach to look into core corporate governance problems. The new mode of thinking suggests that the core corporate governance issues are not purely from inside the corporation, nor solely from outside the corporation. Rather, they actually reside at the intersection of internal and external governance spheres interplayed by corporate powers and political, market and other key stakeholder players. Illustrated by three key exemplary theses, the critically reflexive mode of thinking shows fundamental different understandings among the three modes of thinking. This mode of thinking points to a new direction in corporate governance research and a clearer agenda for effective corporate governance reforms.

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“…This condition is largely met for the The use of commercial ratings has been recently criticized for not equally weighting governance indicators and, as a result, for being too subjective (Daines et al, 2010). To test the reliability and credibility of the ROB index, we collected the 2004 corporate governance ratings for each firm in our sample from Institutional Shareholder Services (ISS), a well-established US governance index (CGQ ratings).…”

Section: Corporate Governance Metricsmentioning

confidence: 99%

Governance practices and firm performance: Does shareholders’ proximity to management matter?

Bozec

Dia

2014

Int J Discl Gov

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Richard Bozecis a Full Professor of Accounting at the Telfer School of Management, University of Ottawa where he currently teaches advanced financial accounting courses. He is joining the growing number of researchers in the field of corporate governance who are shifting to more holistic analytical approaches, taking into account the variety of controls that interact to affect a firm's performance. ABSTRACT This article investigates the link between corporate governance practices and firm performance, a topic that received a lot of attention by regulators, interest groups and academics. Research in this field has recently shifted from the analysis of one or more specific governance provisions to the analysis of multiple aspects of corporate governance. In fact, most studies now use corporate governance indexes that capture a wide range of corporate governance provisions (index-based studies). The objective and main contribution of this article is to revisit the governance-performance relationship while taking into account shareholders' proximity to the locus of management. Shareholders' proximity is defined based on ownership concentration and whether or not the dominant/controlling shareholder holds top executive positions in the firm. The lowest level of proximity is evidenced in firms with dispersed ownership, the highest level in controlled entities where the controlling shareholder holds the CEO and/or Chair positions. Governance is measured on a global scale using the Report on Business (ROB) index. The study is conducted over a 4-year period (2002)(2003)(2004)(2005) using panel regressions in a two-stage least squares framework on a sample of Canadian publicly traded companies (470 firm-year observations). The results of the study show a positive relationship between the ROB global index (and sub-indexes) and Tobin's Q whether ownership is dispersed or is concentrated in the hands of a dominant or controlling shareholder. Shareholders' proximity to management has no impact on the governance-performance relationship. Overall, the results support a one-size-fits-all approach to governance, a policy adhesion that underlined the widespread adoption of Codes of Good Governance and legal/ regulatory changes in the years following Enron's collapse in the United States. Initiatives were in large part supported by a general consensus toward a stock market-centered model of governance. However, with the recent debt crisis in the United States, public perception has changed. The credibility of such a model for governing our institutions is called into question. Our study tempers these concerns by showing that governance controls should not account for ownership differences in the context of publicly traded companies. Instead, good governance practices based on an independent board of directors that promotes transparency and protects shareholders' rights should be prioritized whether or not ownership is dispersed or concentrated. From a corporate governance standpoint, this study sheds new light on controlled compani...

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Rating the Ratings: How Good are Commercial Governance Ratings?

Cited by 102 publications

References 47 publications

What is the Relation (if any) Between a Firm’s Corporate Governance Arrangements and its Financial Performance?

What is the Relation (if any) Between a Firm’s Corporate Governance Arrangements and its Financial Performance?

Modes of Thinking in Corporate Governance: In Search of Root Causes of Governance Malfunctioning

Governance practices and firm performance: Does shareholders’ proximity to management matter?

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