Corporate Governance Study Links Bad Boards to Higher Risk and Increased Volatility

Corporate Governance Study Links Bad Boards to Higher Risk and Increased Volatility

Academic Research Demonstrates Financial Impact of Poor Governance

Rockville, Maryland; February 3, 2004: A study jointly released today by Georgia State University and Institutional Shareholder Services (ISS), the world’s leading provider of proxy voting and corporate governance data services, directly correlates corporate governance and company performance. The research, undertaken by Lawrence Brown, Ph.D. and Marcus Caylor of Georgia State University is the first independent academic study to clearly demonstrate the impact board composition and practices can have on company performance. The study examined the relationship between corporate governance and four important fundamental areas including: Total Return, Profitability, Risk and Dividend Payout. “Our findings reveal that companies with weaker corporate governance perform more poorly, are less profitable and have higher volatility than do firms with stronger corporate governance,” said Georgia State’s Dr. Lawrence Brown. “The average difference in annualized returns between bottom decile and top decile companies was 11.9% over the preceding five-year period. Board composition proved to be the most important factor.”