Doctoral Symposium 2013 Submission Stu id.

09988723

Corporate Governance: Its effect on Share Price

Steven Walker

Submitted to: RIBM Doctoral Symposium 2013

14th & 15th March 2013

Steven Walker
Research Institute for Business and Management
Manchester Metropolitan University
All Saints Campus
Oxford Road
Manchester
M15 6BH
E-mail: 09988723@stu.mmu.ac.uk

Corporate Governance: Its effect on Share Price

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 firms 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

Corporate Governance: Its effect on Share Price

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

Corporate Governance: Its effect on Share Price

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

Corporate Governance: Its effect on Share Price

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

Corporate Governance: Its effect on Share Price

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?

Corporate Governance: Its effect on Share Price

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 principalagent 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 UKs
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

Corporate Governance: Its effect on Share Price

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 companys
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 companys 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
companys 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
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Corporate Governance: Its effect on Share Price

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 1997-2002 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 Metricks research of 2003. The research investigated the
influence of corporate governance on the valuation of a company, measured by
Tobins q, (defined as the market value of a companys 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 0.14. 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

Corporate Governance: Its effect on Share Price

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 2004. 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.
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Corporate Governance: Its effect on Share Price

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.
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Corporate Governance: Its effect on Share Price

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 2010.
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 1990s. 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

Corporate Governance: Its effect on Share Price

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 & Pages 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
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Corporate Governance: Its effect on Share Price

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 2012.
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.

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Corporate Governance: Its effect on Share Price

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 UKs 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.

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Corporate Governance: Its effect on Share Price

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)

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Corporate Governance: Its effect on Share Price

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.
2013
March

2014
October

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

17

March

2015
October

March

October

Corporate Governance: Its effect on Share Price

the reliance placed upon
commercially generated
governance scores in
considering investment
decisions.

Results analysis
and conclusions
Drawing conclusions
from the results

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Corporate Governance: Its effect on Share Price

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Corporate Governance: Its effect on Share Price

VINTILA, G. & GHERGHINA, S. C. 2012. 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

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