Publications
Publications
- December 2010
- Journal of Financial Economics
Rating the Ratings: How Good are Commercial Governance Ratings?
By: Robert M. Daines, Ian D. Gow and David F. Larcker
Abstract
Proxy advisory and corporate governance rating firms (such as RiskMetrics/Institutional Shareholder Services, GovernanceMetrics International, and The Corporate Library) play an increasingly important role in U.S. public markets. They rank the quality of firm corporate governance, advise shareholders how to vote, and sometimes press for governance changes. We examine whether commercially available corporate governance rankings provide useful information for shareholders. Our results suggest that they do not. Commercial ratings do not predict governance-related outcomes with the precision or strength necessary to support the bold claims made by most of these firms. Moreover, we find little or no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals.
Keywords
Corporate Governance; Markets; Rank and Position; Quality; Business and Shareholder Relations; Voting; Change; Information; Outcome or Result; United States
Citation
Daines, Robert M., Ian D. Gow, and David F. Larcker. "Rating the Ratings: How Good are Commercial Governance Ratings?" Journal of Financial Economics 98, no. 3 (December 2010): 439–461.