Corporate Governance Scoring Systems: What Do They Tell Us?

The failure of companies such as Enron in the United States, and One. Tel and HIH in Australia, and the collapse of Arthur Andersen have created a worldwide debate on the importance of good corporate governance practices. A number of accounting and consulting firms and rating agencies have responded to the debate by developing corporate governance scoring systems (CGSS). In this paper we seek evidence of whether CGSS convey any information about the financial characteristics and performance of companies. We find no evidence of any significant relationship between the corporate governance score and financial performance. However, we find a direct relationship between a firm's size and its corporate governance score.