A portfolio comprising 11 companies that have received low corporate governance ratings from Governance Metrics International over the past two years would have declined by 38.2% as of Oct. 15, GMI reported in a study. The stock prices of 10 of the companies fell, and the prices of five of them each plunged more than 60%.
The study sampled companies that were given low ratings before alleged accounting or other management irregularities were brought to public attention by regulators or investors, said Gavin Anderson, CEO. The study tracked the ensuing total return stock performance of each company from the day before GMI issued its rating until Oct. 15, 2004. GMI issued the ratings for nine of the companies in 2002 or 2003, and for two in January 2004.
The companies chosen were Freddie Mac, Fannie Mae, Interstate Bakeries Corp., Krispy Kreme Doughnuts Inc., Parmalat Finanziaria SpA, Biovail Corp., UFJ Holdings Inc., Siebel Systems Inc., Tenet Healthcare Corp., Mylan Laboratories Inc. and King Pharmaceuticals Inc. Mr. Anderson said Mylan's acquisition of King hasn't closed yet.