Skills At The Board Game Return The Best Results
The Age
Monday June 19, 2006
COMPANIES with better corporate governance deliver superior returns to investors, according to research from Goldman Sachs JBWere.
The study found that companies with solid corporate governance generated returns 10.9 per cent above the market. The ones with good board skills provided 10.9 per cent better returns. Returns from those with solid boards were 10 per cent above and those with good remuneration policies and practices had returns that were 7.1 per cent up on the market. The data, based on ratings from research firm Corporate Governance International and tracked over the year to date, also found companies with better governance were less likely to come up with nasty surprises, and more likely to come up with better than anticipated figures, in their results. Using corporate governance as an indicator of "earnings surprise" below or over market expectations, the study found that top-rated companies reported an average earnings surprise of 2.6 per cent, versus minus 0.4 per cent for low-rated companies. Over the long term, companies with top-rated board skills reported an average earnings surprise of 4.3 per cent versus 0.7 per cent for low-rated companies. The report says that well-governed companies have better operational momentum, which means they are more likely to produce results above market expectations. "Companies with higher-quality reported information . . . are less likely to suffer accounting or reporting errors that require subsequent typically negative revision," it said. "Well-governed companies understand the need, and have the ability, to communicate and manage market expectations and therefore likely to provide more reliable earnings outcomes relative to expectations."
© 2006 The Age