Corporate Governance: Its effect on Share Price

Transcription

1 Doctoral Symposium 2013 Submission Stu id Corporate Governance: Its effect on Share Price Steven Walker Submitted to: RIBM Doctoral Symposium th & 15 th March 2013 Steven Walker Research Institute for Business and Management Manchester Metropolitan University All Saints Campus Oxford Road Manchester M15 6BH

2 Abstract Amongst the abundance of theory surrounding the value of the firm several refer to investments strategies to enhance portfolio values and create positive long term returns. The purpose of this review is to obtain a snap shot of current research findings from a critical review four relevent empirical literary papers with the objective of gaining a greater understanding of the claim that improved adoption of corporate governance principles by firms positively affects equity value. The methodology used to achieve our objective will be a critical review and analysis of recent and relevent research papers to see if there are conclusions that can be drawn or inferred from such research and also to determine whether commercially produced governance rankings available from credit rating companies provide reliable indicators for assessing a firm s adoption of governance principles. The idea being that firms with low governance rankings may as yet have an unrecognised and inherent equity gain that could attract potential investors who wish to engage with the board to improve the firms adoption and disclosure of governance principles that would be recognised by the market and create increased demand positively affecting equity values. The findings of this review suggest that, in accordance with the findings of Drobetz et al, 2003 and Abdullah and Page 2009, the market already assumes that firms governance strategies incorporate the principles of governance and as a consequence thereof equity values already reflect any gain. The implications for investors are clear that there unlikely to be many short term gains still available and additionally there are sufficient reasons to doubt the reliability of commercially generated governance scores as an investment guide. Keywords: Corporate Governance, Governance Scores, Equity values and Investment Strategy 2

3 Contents Introduction and Aim Research Context and Objective Theoretical approach Research Questions Literature Review A brief History of Corporate Governance The development of the UK Combined Code 2010 Compliance and the comply or explain principle Evidence of adoption and disclosure Governance scoring and measuring compliance Institutional Investors Strategy Discussion of the methods used by other researchers Discussion of the findings and conclusions drawn by researchers Conclusion Appendix Limitations, implications of and suggested areas for further research Detailed work-plan 3

4 Introduction and Aim The context and central topic of this literature review is to critically review, four recent research papers to enquire into the empirical evidence surrounding the fundamental issue that using governance scores to inform investment strategy increases investors increase equity returns and further we consider gaps in knowledge that require additional research to support any claim being made that governance scores provide investors with an opportunity identify firms whose equity values may increase as the firms adoption of measureable governance practice improves. Research Context and Objective This paper considers the issue of improved compliance with provisions contained within recognised governance frameworks to see if there is evidence that investors consider governance scores when making investment decisions and that such considerations identify shares that have the potential to increase in value if the firm improves compliance and disclosure with recommended provisions. Our paper makes an assumption that it is reasonable to assume that shareholders would be willing to pay a premium for such shares as identified by considering and properly interpreting the value of governance scores, which would create an increased demand and positively affect equity values. The structure of this paper is to review the specifically selected four published articles relating to this issue to determine what has already been found, and to look at the methods used to obtain, collate and analyse the data from which we may critically evaluate any conclusions drawn. To achieve this we will look firstly at the main provisions of the major recognized governance frameworks in our case the COSO framework used statutory compliance regime adopted by the US prescribed by the Sarbanes Oxley Act 2002 and the almost identical framework prescribed as a guideline for internal control recommended by Turnbull and prescribed by the FRC in the UK in 2003 and we shall pay attention to the main principles (shown below) of governance frameworks that have been used to create commercially available governance scores. The 5 main governance principles Leadership, Effectiveness, Accountability, Remuneration and, 4

5 Relationship with shareholders. Secondly, we look at what components of the main principles of governance can be directly related to equity value and thirdly, we shall consider how commercially available governance scores rank firms compliance looking in particular at how different credit rating companies use different principles and sub-principles from which to generate governance scores. Corporate governances framework main principles are supported by other code subprovisions which set out exactly what it is that is recommended that firms should adopt in relation to their own corporate governance strategy and to report compliance therewith each quarter as is mandatory under the regulatory framework for firms listed in the US, or for firms listed in the UK, to disclose within their financial reports that they have complied with the recommended guidelines, or to provide an explanation where they have not, which is known in the UK as the comply or explain principle. The idea is that should UK firms not comply then prospective shareholders would have an opportunity to sell their share holding should they so wish forming what is effectively a market sanctioned regulation on those firms and explaining why governance should affect equity values. We shall build and develop our argument particular to the UK as this is the substantive focus of the review and it should be remembered that in the UK, at least, companies and shareholders both have responsibilities for ensuring that the comply or explain principles based approach remains an effective alternative to the rulesbased regulatory approach adopted by the United States. To summarise the sub-categories for our research we shall: 1. Consider how the provisions of governance have been researched previously. 2. Consider components of governance that can be related to equity value. 3. Consider how commercially governance scores rank compliance. Theoretical approach The underlying theoretical approach for this research acknowledges that one could argue that there is an hypothesis that could be tested to measure the effect of governance scores upon investment strategy but this approach is somewhat rigid and set firmly in a quantitative methodology, we may also argue that in the social world it is individual shareholders who make investment decisions based upon their own situations and expectations. We may also argue that over time the market will 5

6 self regulate in any event and short term equity gains resulting from governance compliance cannot be so easily maintained in a free market economy simply by making investment decisions based on particular on scoring methods, however knowledge of shareholder activity does result directly from observing investor activity and probably adopts a fairly realistic approach over time. Research Philosophy Adapted from Partington, 2008 Figure 1 Key aspects of the study Research Questions The consideration of our research aim and objectives develops our research questions which may be summarised: What aspects of governance, if any, affect equity value? Does using governance scores to inform investment strategies increase equity returns? Are governance scores a reliable means by which to assess potential investments? 6

7 Literature Review A brief History of Corporate Governance The need for corporate governance arises out of the gap in professionally managed listed companies between the rights of shareholders and the operational control exercised by the board of directors, referred to as the principal agent issue. In 1992 the UK government established the Cadbury Committee to review the issues surrounding companies governance whose objective was to raise standards in corporate governance here in the UK. Prior to the publication of the Cadbury Report the governance of UK Companies was largely regulated by provisions of the Companies acts, practice, and for listed companies the LSE listings requirements. In the post-cadbury era, listed UK companies have gradually converged towards a system of internal control and risk management that conform largely to the principles contained in the Turbull Guidelines of 2003 based along similar lines to the US COSO/SOX model, both of which are the precursors to the latest version of the (UK) Corporate Governance Code issued by the FRC in 2010 in the UK which retains the flexibility of the comply or explain approach. The development of the UK Combined Code 2010 Following the recent and global financial crisis in 2007, attention once again focused on the application, practice and disclosures recommended by corporate governance principles applicable to listed UK companies. The example of the 2007 credit crunch, in which colossal troubles in the global financial sector rapidly transmitted to non-financial sector, clearly illustrates the need to understand how corporate governance interacts with financial performance, and further raises the question of whether more robust compliance, disclosures and effective regulation relating to corporate governance principles might protect, or at the very least soften the blow, experienced by investors from receiving sudden and unexpected drops in the value of their investments. This led to policy reviews of UK corporate governance undertaken in 2009 by the FRC in their review of the Combined Code and the Walker Review of corporate governance in UK banks and other financial entities. The reviews found relatively little concern among respondents about the quality of governance in UK companies and respondents believed that governance, and the dialogue between companies and shareholders had improved. Main concerns arose partly because of corporate failures and gross strategic errors by companies, which included some of the UK s high street banking institutions. It would seem that a reasonable objective of good governance would be to reduce the riskiness of corporate performance and the 7

8 probability of experiencing a nasty surprise. Unfortunately recent academic research shows there is little evidence that governance arrangements are effective in reducing risks or significant drops in share values. (Abdullah and Page, 2009) Compliance and the comply or explain principle The principles of the Combined Code are based upon the underlying principles of good governance: accountability, transparency, probity and focus on the sustainable success of an entity over the longer term. For each main principle a number of code provisions or measures are determined, which specify a desired objective, enabling company variables to be monitored on an ongoing basis by a company s management board. The concept of Comply or Explain is the regulatory approach used in the UK which rather than setting out binding laws as in the United States via the Sarbanes Oxley Act, the FRC set out a code which listed companies may either comply with, or explain publicly why they do not. The purpose of comply or explain is to let the market decide whether an individual company s standards are appropriate. This approach rejects the view that "one size fits all", but because of the requirement to disclosure explanations to the market it anticipates that if investors do not accept a company's explanations, then they will sell their shares potentially reducing a company s market value and create a "market sanction", rather than a regulatory one. A key question that could be asked of corporate governance is whether its purpose is about the control of risks or the improvement of operating performance? Evidence of adoption and disclosure In order to develop our key argument we need to evidence what other recent empirical research has found, and we decided that a suitable method of doing so would be to critically review four relevent and recent academic journal articles whilst paying particular attention to the central objective of the research to establish if equity values increase as a result of a more thorough compliance, with and disclosure of, the provisions contained within the corporate governance guidelines which may have both a positive and significant consequence for investors. In essence our data is based on the findings of the research articles reviewed and provides us with a conceptual framework to support our research conclusion. Let us begin by looking at (Bauer et al.) 2003, who conducted research in which they compared the return of a portfolio consisting of well-governed companies to the 8

9 return of a portfolio composed of badly governed companies. Their sample consisted of Euro zone companies included in the FTSE Eurotop 300 index and covered a five year period and utilised Deminor Corporate governance ratings. Their governance score was based on circa 300 criteria, subdivided into four categories, Rights and duties of shareholders, Range of takeover defences, Disclosure on corporate governance and Board structure and functioning. Within this research, they examined the impact of corporate governance on stock returns, firm value and operating performance for firms incorporated in the European Monetary Union (EMU). The methodology of their study was comparable to Gompers, Ishii and Metrick s research of The research investigated the influence of corporate governance on the valuation of a company, measured by Tobin s q, (defined as the market value of a company s assets divided by their replacement value). A high q implies that investors were willing to pay relatively more for a company compared to its book value. The coefficient of the governance rating was statistically significant and positive at Investors therefore seemed to be willing to pay more for a company with a higher rating. This result coincides with the conclusions of Gompers et al. In conclusion Investors appear to value well-governed companies. One caveat of course is that the research was made in 2003 being almost immediately after the implementation of the new governance guidelines by most, if not all, FTSE Eurotop 300 companies. Additionally, other research undertaken (Bauer and Gunster, 2003) looked at the empirical evidence on Corporate Governance in Europe and the Effect on Stock Returns and analysed whether good corporate governance led to higher common stock returns and enhanced firm value in Europe. Their results showed a positive relationship between good stock returns and corporate governance. They also analysed the relationship between corporate governance and firm performance, for which surprisingly, and contrary to Gompers et al. (2003), they found a negative relationship between governance standards and the firm performance ratios, however overall their research suggests that if better-governed firms tended to have higher stock returns, this should in the long-run, translate into higher firm valuations. Again, the results of this research were obtained from data gathered in 2003 and one should bear in mind how recent governance rules in Europe would have affected the results arrived at, which may, by 2012, no longer be relevant. In another research study conducted in Germany (Drobetz et al., 2003) followed a similar approach to that taken by Gompers, Ishii, and Metrick (2003), where the researchers gathered 30 governance measures and sub divided these into five categories of corporate governance, commitment, shareholders rights, transparency, management and supervisory board matters, and auditing. The 9

10 researchers sent out a detailed questionnaire with all thirty governance proxies to all firms in the four principal market segments in Germany comprising in total 253 firms. The research aim was to assess the relationship between equity returns and their own constructed Corporate Governance Score which they abbreviated to CGR. The research indicated that an investment strategy that bought high-cgr firms and shorted low-cgr firms would have earned abnormal returns of around 12 percent on an annual basis during the sample period. Thus, if corporate governance matters for firm performance, and this relationship is fully incorporated by the market, then a stock price should quickly adjust to any changes in firm-specific governance. Importantly they concluded that as soon as firm-specific corporate governance practices were adopted the required return on equity decreased. This implies a higher firm valuation. In line with this hypothesis, the research finds a strong relationship between the corporate governance rating (CGR) and firm values. Finally later research reviewed by (Abdullah and Page, 2009) examined the performance of non-financial FTSE 350 companies in the UK, in relation to their governance structures. Their research reviewed recent investigations into whether companies with particular corporate governance characteristics outperformed other companies and achieved lower levels of risk. The three governance characteristics investigated were board independence, board size, directors ownership of equity and the extent of ownership by large block shareholders, such as Institutional investors. Their research used financial information, corporate governance data and ownership data, derived from Thomson Financial Datastream and Pensions Industry Research Consultancy, for non-financial companies in the FTSE 350 as at 31 December 1999 and/or 30 June Their research revealed no clear systematic relationship between governance factors and improved performance, and no strong evidence that governance reduces risk. This finding perhaps supports the theory that the UK market had incorporated governance principles and that shareholders assumed good governance when determining their investment portfolio acquisitions. (Balasubramanian et al., 2011) researched the corporate governance practice of public firms in emerging markets, in this case India, and provided a detailed overview of the practices of publicly traded firms. The research identified areas where governance practices are relatively strong or weak and found a positive and statistically significant association between the Indian Corporate Governance Index (ICGI) and firm market value. However some caution needs to be exercised as earlier research in other countries had already concluded that adoption of governance practices does for a short time increase share prices, but once the market has adjusted these type of gains reduce as share prices reflect an assumed adoption of and compliance with governance provisions. 10

11 Governance scoring and measuring compliance In recent years a number of governance measurements or scores have been established whereby researchers and governance rating companies can monitor and assess the level of compliance made by companies in their financial statements, the measurements are usually numerical scores derived by allocating points to each governance measure complied with which can be ranked against other companies scores. Corporate performance is generally and historically measured by three main ratios: market value to book value; return on assets; and sales to total assets. If one of the main purposes of corporate governance is about the foresight of, control of, and management of risks, to aid improvement and performance and reduce the likelihood of a share price fall, then in theory, researchers could develop a robust formula to measure of the success of adherence to corporate governance principles by firms. There has been a considerable amount of research on the relationship between governance and performance but most of it was undertaken before companies had fully assimilated new governance principles. Finally, and increasingly importantly, we should also consider the accuracy of the governance scores created by commercial credit rating companies. (Daines et al., 2010) have seriously questioned that corporate governance rating firms (such as Risk Metrics/Institutional Shareholder Services, Governance Metrics International, and The Corporate Library) produce governance scores that are reliable and that they do not predict governance-related outcomes with the precision necessary to support the bold claims made by them. They found little correlation among the alternative ratings, suggesting that either the ratings are measuring very different corporate governance constructs or that there is substantial measurement error in at least some of the ratings. As these firms use the same basic governance data, and claim to measure overall corporate governance, (Daines et al, 2010) believe that the results contain substantial measurement errors. This leads to their conclusion that they currently do not have the right model for estimating the impact of firm governance on firm performance. It can be shown that initially better adherence and adoption and disclosure of governance principles did affect equity values, but this initial affect soon became understood by investors and the current position now seems to suggest that equity values already incorporate an assumed governance incremental value. 11

12 Institutional Investors Strategy Before acquiring shares an investor would, it is assumed, align their portfolio with pre-set objectives, or levels of risk, that are acceptable. For this purpose we are make an assumption, that would need to be substantiated, that investors may, as one of their investment measures, utilise governance compliance ratings to assess their investment decision. Using corporate governance ratings should represent a proper approximation of the quality of corporate governance practices utilised by firms (subject to concerns raised by Daines et al, in 2010) and this fact determines which shares to hold in certain companies for the long term by investors who may be interested in the quality of corporate governance practices of those companies. In a study made by (Vintila and Gherghina, 2012) their results reveal that commercial corporate governance ratings, like Governance Risk Indicators (GRId), provided by Institutional Shareholder Services (ISS) are indeed affected by measurement errors, providing further support to the same concerns raised by Daines et al in It may well be that by 2012 governance scores already reflect governance measures within share prices, as both the regulatory approach as in the US, or the comply or explain approach as in the UK, may now reflect this. It would however appear that care must be exercised by investors who rely too heavily on governance scores as the only or key measure by which to make strategic portfolio investments. Discussion of the methods used by other researchers A seminal research paper, much referred to by academic researchers is that of (Gompers et al., 2003) and their paper corporate governance and equity prices where they built a corporate governance index that they called G which included 24, US Investor Responsibility Research Center or IRRC which is a US corporate governance research centre, distinct corporate-governance provisions sub-divided into 5 thematic groups for 1,500 US firms during the 1990 s. In their research they devised an investment strategy to buy shares in firms with good governance (strong shareholder rights) and sell shares in firms with poor governance (weak shareholder rights) and found that this strategy recorded abnormal returns of 8.5% p.a. thus showing a strong correlation between governance and stock returns. The research methods employed by previous research included predominantly that of quantitative analysis using statistical regression, coefficients and correlation to determine significance and notable relationships. The 2003 research by Bauer and Gunster, and Bauer et al, utilised this method, as did Drobetz 2003 in his research on German firms. Daines et al in 2010 used quantitative analysis to measure and 12

13 compare governance ratings, as did Arora 2012 in his Indian research and Vintila et al in their 2012 US research. Refreshingly Balasubramanian et al 2011used a mixed method approach initially utilising a qualitative methods based questionnaire to obtain their data and then subjecting the results from the questionnaires using statistical analysis and a quantitative approach. Finally Abdullah & Page s 2009 research paper on the UK FTSE 350 comparing governance characteristics to firm performance and risk utilised not only multiple regression analysis three performance measures available from published information but also results obtained from an empirical study of other relevant literature which helped to inform their research. Discussion of the findings and conclusions drawn by researchers The research conducted by (Abdullah and Page, 2009) found that few research studies found a positive relationship between corporate governance and measures of corporate performance and their research revealed no clear relationship between governance factors and improved performance of individual companies. This finding is not however supported by the research conducted on food and beverage companies on the Indian markets by (Arora, 2012) who states that corporate governance is of great significance for firms performance, and further that investors are driven to invest in well managed firms as the markets respond positively to better governed firms who adopt and implement good governance practices. This research paper would suggest that as India is still considered to be an emerging market then initial gains may still be evident, but will reduce as governance practice increases. In their paper issued by the European Corporate Governance Institute (Balasubramanian et al., 2011) are also looking at the Indian market and their research finds a positive and statistically significant association between the Indian Corporate Governance Index (ICGI) and firm value in India, again we advise caution as governance research based on the emerging markets in India may not as yet have had sufficient time to adjust to post governance adoption and share prices may not have stabilized or adjusted. (Bauer and Gunster, 2003) research entitled empirical evidence on corporate governance in Europe - The effect on stock returns, firm value and performance. analyzed the relationship between different governance standards and stock returns, firm value, and operating performance for most firms included in the FTSE Eurotop 300 in 2000 and 2001 and found in 2003 a substantial differences between the U.K. market and the Eurozone markets. This result indicates that the U.K. market was, at the time of the research in 2003 was still adjusting providing further support for this papers suggestion that research conducted in the emerging market of Indian may 13

14 well be experiencing a similar effect. However in the EU the research found that there was a stronger relationship between governance and firm value and this evidence might imply that corporate governance standards had already been incorporated into share prices. In conclusion this research an explanation into the early relationships in the UK between governance standards and share prices, however data was drawn from an early UK governance culture market and the results may well now be unreliable post In 2003 German research conducted by (Drobetz et al., 2003) again followed the Gompers G index approach and also found that an investment strategy that bought high-rated firms and shorted low-rated firms would have earned abnormal returns of around 12 percent on an annual basis during the sample period in 2002 leading to the conclusion that firm-specific corporate governance matters from an asset pricing perspective and could be regarded as an additional risk factor for which investors require higher than expected returns. They conclude in 2003 there is no evidence for the German market that institutional shareholder activism is associated with any short- or long-term wealth effects. However, they believed that professional investors would become more active in the future. It is also significant that the findings of (Daines et al., 2010) suggest quite clearly the possibility of significant errors in commercially produced governance scores upon which investors may be relying suggesting that either the ratings are measuring very different corporate governance constructs or that there is substantial measurement error in the ratings. When (Vintila and Gherghina, 2012) tested the relationship between firm performance (measured by return on equity), and the ISS measure the Corporate Governance Index or GCI, they could not validate the model. Thus, confirming Daines, Gow & Larcker (2009) conclusion, according whom the commercial ratings are indeed affected by a large amount of measurement error. 14

15 Conclusion Initially this research made an implicit assumption that firms who improved their governance would attract shareholders to invest in their shares which would increase the equity value of the firm. This assumption led to the research question, do UK listed companies fully adopt the provision contained within the UK Combined Code and properly disclose that they have done so in their financial statements, and do investors consider commercial governance scores when making investment decisions? The review of empirical literature showed that on research undertaken, in 2003 and later, in the emerging market of India, supported the theory that there were initial short term gains to be made by savvy investors who recognised that as firms improved their governance practices then the value of the firms share would increase. However research undertaken much more recently in 2011 and 2012, has begun to question whether such gains are really still available to investors in a post governance world where good governance is assumed and is reflected in a firms share price, and further that the commercially produced governance scores provided by credit scoring companies may contain significant measurement errors and be unreliable when making strategic investment decisions. In terms of making a contribution to existing knowledge this paper would suggest that whilst it remains possible that governance aware and bullish investors may make gains in emerging markets such as India or China, or the less regulated voluntary compliance markets such as the UK s FTSE Alternative Investment Market (AIM), it does seem that making gains on well established markets, FTSE in the UK, or Dow Jones/ NYSE in the US, is no longer a commercially worthwhile pursuit, as there is increasing evidence that mature markets already reflect an assumed level of good governance and that share prices already reflect additional post governance values. Active and globally aware investors who have higher risk thresholds may still seek short term governance gains in less regulated markets, or emerging markets such as China or India, but this type of high risk investment strategy increases the risk of incurring losses dramatically and may not be suitable for institutional investors who seek to make consistent and steady long term gain on their investments. 15

16 This paper establishes that although there are signs that improved governance positively affects firm value, the effect is short lived, as investors appear to have already accounted for improved governance compliance and that share prices have already stabilised at new governance reflected levels. Limitations, implications of and suggested areas for further research No review of current research can be comprehensive and this paper considered only four recent and relevant journal articles and reviewed only some elements of corporate governance and found that it does appear that the market has by 2013 adjusted to a post governance share price that reflects an assumed adoption of governance principles. More time needs to be invested into the perfection of governance rating databases, perhaps by creating a new, acceptable and peer reviewed corporate governance score formula that is deemed reliable, which may then convince institutional investors to take account of governance scores in their investment strategy and vote with their head thus rewarding well-governed companies rather than merely voting with their feet and punishing badly-governed companies. (Bauer and Gunster, 2003) The message to professional investors is that by identifying firms with solid business models in a post governance world but with a low governance score, shareholder engagement activities may lead to higher returns until firm governance practices improve. (Drobetz et al., 2003) 16

17 Appendix 1. Corporate Governance: Its effect on Share Price Detailed work plan Below is a summary of the detailed work plan and time line to complete the further research required to determine why investors should, or should not, consider governance scores as a reliable indicator when making investment decisions which is supported by some academic articles as affecting the share price of a company and thereby increasing returns. Research design clarification It is necessary in the light of this initial report to be specific about exactly what research question needs to be addressed. Specific literature reviews on related issues A complete assessment will need to be made of all empirical evidence surrounding governance scores, current investment strategy and effects upon share prices. Method and collection of data It would seem appropriate to collate data not only form recent empirical research, but also from the compiling and completing of a detailed questionnaire that would need to be completed by a representative cross section of institutional investors in the UK. It may also be considered appropriate to conduct detailed interviews with a sample of those questioned to gather a more in depth knowledge of the drivers behind investment strategy and March October March October March October 17

18 the reliance placed upon commercially generated governance scores in considering investment decisions. Results analysis and conclusions Drawing conclusions from the results 18

19 References ABDULLAH, A. & PAGE, M Corporate Governance and Corporate Performance: UK FTSE 350 Companies. The Institute of Chartered Accountants of Scotland. ARORA, A Relationship between Corporate Governance and Performance: An Empirical Study from India. Journal of Finance, LVIII. BALASUBRAMANIAN, B. N., BLACK, B. S. & KHANNA, V. S The relation between firm-level corporate governance and market value. A study of India. Law Working Paper No. 177/2011 [Online]. Available: BAUER, R. & GUNSTER, N Good Corporate Governance pays off. Wellgoverned companies perform better on the stock market.: ECCE. BAUER, R., GUNSTER, N. & OTTEN, R Empirical Evidence on Corporate Governance in Europe. The Effect on Stock Returns, Firm Value and Performance. The Journal of Asset Management, 5, DAINES, R. M., GOW, I. D. & LARCKER, D. F Rating the ratings: How good are commercial governance ratings? DROBETZ, W., SCHILLHOFER, A. & ZIMMERMANN, H Corporate Governance and Expected Stock Returns - Evidence from Germany. 5th May 2003 ed.: Social Science Research Network (SSRN). FINANCIAL REPORTING COUNCIL, Internal Control: Revised Guidance For Directors on the Combined Code (formerly known as the Turnbull Guidance). FINANCIAL REPORTING COUNCIL, The UK Corporate Governance Code. FINANCIAL REPORTING COUNCIL, Internal Control: Guidance for Directors on the Combined Code (The Turnbull guidance). GOMPERS, P. A., ISHII, J. L. & METRICK, A Corporate Governance and Equity Prices. Quarterly Journal of Economics, 118,

20 VINTILA, G. & GHERGHINA, S. C An Empirical Examination of the Relationship between Corporate Governance Ratings and Listed Companies Performance. International Journal of Business and Management, 7. Authors Address Steven Walker MMUBS (Department of Accounting and Finance) All Saints Campus, Oxford Road, Manchester M15 6BH United Kingdom 20