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Evaluating the Evaluators: Should Investors Trust Corporate Governance Metrics Ratings?

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Abstract

Companies are under increasing pressure to have their corporate governance rated by an independent corporate governance metrics firm, such as Institutional Shareholder Services (ISS) or Governance Metrics International (GMI). These rating firms claim to be able to determine how effective and responsive a company’s board is. Institutional investors have begun using these board governance ratings when deciding which firms to include in their stock portfolios. This paper considers whether investors, many of whom claim to be socially responsible, should be relying upon board governance metrics. We find that these metrics are not good indicators of either the quality of a firm’s earnings or of its ethics.

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Authors and Affiliations

  1. Cullen Chair of Business Ethics, University of St. Thomas, TX, 77006 , Houston, USA

    Daryl Koehn

  2. Associate Professor of Finance, University of St. Thomas, Houston, TX, 77006, USA

    Joe Ueng

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  1. Daryl Koehn
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  2. Joe Ueng
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Correspondence to Daryl Koehn.

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Koehn, D., Ueng, J. Evaluating the Evaluators: Should Investors Trust Corporate Governance Metrics Ratings?. J Manage Governance 9, 111–128 (2005). https://doi.org/10.1007/s10997-005-4027-8

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  • DOI: https://doi.org/10.1007/s10997-005-4027-8

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