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24 April 2008
Herald Sun: Low risk players better by far
Source: www.news.com.au/heraldsun/
Olga Galacho
April 24, 2008 12:00am
WHEN governance-related factors spark volatile trading,then companies with good governance records are likely to outperform the market, according to research released by Goldman Sachs JBWere.
The focus this year on some companies'' levels of margin lending, related party transactions and directors'' shareholdings has contributed to the market jitters, according to the firm''s environmental, social and governance executive director Andrew Gray.
"It makes intuitive sense that the lower risk attributes offered by better governed companies would perform well in such volatile periods where investors became increasingly risk averse," Mr Gray said.
While his research has been plotting the link between improved investment returns and strong corporate governance for seven years, Mr Gray said the analysis had an added edge during times of a bear market. The research analyses about 30 ASX 200 companies across all sectors.
Updated research showed that between the end of November and March, when markets recorded big historical slumps, companies with good overall governance recorded returns of 6.7 per cent above the ASX 200 benchmark.
Mr Gray noted that on balance, the corporate governance signal provided strong returns for investors, even during the recent period of market volatility. Using governance ratings data from CGI Solutions, Mr Gray measured how governance issues can affect a company''s valuation and investment returns.
CGI Solutions rates 156 companies twice a year on the quality of audits, board structure, directors'' skills, transparency of remuneration policies and accounting practices.
Between August 2001 and March 2008, analysis showed that companies with a strong governance record increased returns by 12 per cent.
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Herald Sun: Low risk players better by far
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