The annual publication of CalPERS' focus list of poorly performing companies tends to stem the tide of eroding shareholder value in those firms, but it provides only a modest boost in performance going forward, according to a study by two researchers at Wilshire Associates.
According to their study of 117 companies targeted by CalPERS from 1987 through mid-2004, focus-list companies had cumulative returns averaging 93.5 percentage points below their respective benchmarks in the five years prior to the list's publication — equivalent to 14.1 percentage points a year.
For the first five years after the list was published, the average return of targeted companies was a cumulative 15.3 percentage points above their respective benchmarks, or an annualized 2.9 percentage points.
The boost in returns is nice, but nowhere close to the 54-percentage-point cumulative boost measured in 1995, the study noted. In fact, a majority of target firms continue to underperform even after the list is published.
"However, if it were not for a very few select companies with large excess returns, the five-year, 15.3% cumulative excess return would have been meaningfully lower," wrote Rosalind Hewsenian, managing director of Wilshire, and Andrew Junkin, vice president.
The authors explained that CalPERS was less aggressive in using the focus list in the late 1990s, and that recent five-year periods reflect the influence of the bear market, which could delay the rebound by weak performers.