Investors Love Companies That Follow Good Corporate Governance

Good corporate governance undeniably brings resilience in companies, improves values, and attracts cheap capital. A recent study by the Philippine Institute of Corporate Directors (ICD) suggests that corporate governance practices in the country have improved over the last five years, and that new scores have led to significant change in the valuation of firms. The study determined the co-relationship between share prices and corporate governance in China, Hong Kong, Indonesia, the Philippines and Thailand. Jesus P. Estanislao, Chairman of the ICD, said that:

    “The question as to whether in fact corporate governance makes a difference in the valuation of the firms in the stock exchanges, and in all five economies, the answer is very clearly so, and the result is that relationship is robust.”


He added that, while the study does not include how much premium investors are willing to pay for companies following good corporate governance, nevertheless in comparison with the previous review, it shows that investors in developing countries were amenable to premiums of up to 40 percent for highly regarded firms.

The President of the Philippine Stock Exchange (PSE) also commented on corporate governance and investment in the light of another recent study from the Hong Kong Baptist University:

“The PSE is encouraged by the results that showed a positive correlation between corporate governance and firm valuation, these findings prove that investors value corporate governance practices as well as affirm the PSE’s direction of promoting good corporate governance practices in listed companies.”

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