Corporate Governance Ratings and Firm Performance |
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| Authors: | Mine Ertugrul Shantaram Hegde† |
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| Institution: | Mine Ertugrul is an Assistant Professor of Finance at the University of Toledo, Toledo, OH.;Shantaram Hegde is a Professor of Finance at the University of Connecticut, Storrs, CT. |
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| Abstract: | We examine the corporate governance ratings provided by three premier US rating agencies and find that summary scores are generally poor predictors of primary and secondary measures of future firm performance. However, some component sub-ratings that focus on the eight key dimensions of dynamic governance structures provide more positive and reliable evidence of their information content in predicting the multiple dimensions of firm performance. These results reflect the recent observations by academic researchers and money managers that it is extremely difficult to distill all of the complex governance mechanisms into a single integrated, yet informative overall score. |
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