Better governed firms are rewarded with higher market valuations, are less leveraged, have greater capacity to service their debts and pay dividends and enjoy more stable profit margins compared to their peers, a new Standard & Poor's research has revealed.
A 4-year study of nearly
300 companies listed on the National Stock Exchange of India found evidence of a positive and significant relationship between corporate governance practices and company performance, an S&P release in Dubai said on Wednesday.
The research, which was carried out between 2005 and 2008 evaluated companies against 127 parameters covering various facets of corporate governance, including shareholder capital, shareholder rights, financial and operational information, board and management information and remuneration, corruption, leadership and business ethics.
"Better governed firms not only command a higher market valuation, they are less leveraged, have higher interest coverage ratios, provide a higher return on net worth and capital employed and their profit margins are also relatively more stable, Standard & Poor's Index Services Vice President Alka Banerjee said."
The study also found Price-Earnings Ratio (P/E) and yields to be relatively higher for better governed firms.