Corporate governance improvements have strongly benefitted companies and also provided returns significantly above benchmark in the US and in Europe. The largest US investor in CG funds has realized returns 8 percentage points over benchmark over the last seven years. The two existing corporate governance funds in two specific countries in the emerging markets have IRRs above 50%. Their portfolio companies have realized very significant value for controlling and non-controlling shareholders.
The Brazilian experience and the success of Novo Mercado – the São Paulo Stock Exchange’s special listing segments for better-governed companies – demonstrate the excess return potential of corporate governance investing ( View Research). Recent research by Professors Ricardo Leal and André Carvalhal da Silva of the Coppead Graduate School of Business in Rio showed that a worst-to-best improvement in corporate governance among a broad sample of Brazilian companies resulted in a 95% increase in stock value as compared to companies with average leverage and Tobin’s q ratios (View Research). Their research also demonstrates that the presence of large non-managerial investors in Brazilian companies is directly correlated with firm performance and share value (View Research).
Research just published by the Association of British Insurers demonstrates that companies undertaking governance improvements are rewarded with higher return on assets and above average industry-adjusted share-price returns. Shares of well-governed companies returned an extra 37 basis points per month on an industry-adjusted basis and demonstrated significantly reduced market volatility. (Selvaggi, Mariano and James Upton, “Governance and Performance in Corporate Britain.” ABI Research Paper 7, February 2008). View Document
Well-governed Korean companies traded at 160% premium to poorly governed firms. (Black, Bernard S.; Jang, Hasung; Kim, Woochan. "Predicting Firms' Corporate Governance Choices: Evidence from Korea." University of Texas Law School Working Paper No. 39, August 2004.) View Document
Large Asian companies with the best governance had economic value added 8% points higher than average firms (Saints and Sinners - Who's Got Religion?," Credit Lyonnais Securities Asia, 2001)).
