The report prepared by Amar Gill, the bank's country head in Malaysia is viewed as a precursor to its annual Investor' Form which, this year, will focus on corporate governance, socially responsible investing and their roles in big business.
"Corporate governance is becoming the next key investment criteria," says Gill. "At the Investors' Forum, we will demonstrate why and which companies to focus on for CG (corporate governance) - not just the good, but also the bad and those likely to move up and down in CG rankings."
As volatile markets are influencing how companies behave, he argues that corporate governance is becoming an increasingly important investment tool. The report entitled Saints and Sinners - Who's Got Religion?, examines and ranks 495 companies in 25 markets across 18 global emerging markets. The bank's analysis of companies, sorted by corporate governance scores, discusses five major findings in relation to corporate governance returns across emerging markets.
The stocks analyzed were rated into 15 main markets/regions: 11 main emerging markets of Asia, as well as South Africa, Turkey and the rest of Eastern Europe, and Latin America, each considered as one market segment.
In 10 of the 11 Asian markets, and in Latin America, companies in the top quartile for corporate governance in respective markets have ROEs (Return on Equity) above the market average. The top quartile companies in each market also have a ROE 10 percentage points higher than the sample average. In 12 of the 15 markets analyzed, companies in the bottom quartile had a lower than sample average ROE.
In 13 of the 15 emerging markets covered, the report found that companies in the top corporate governance quartile in that market have a higher EVA (economic value added) to invested capital than the market average - on average 8 percentage points higher. In 10 of the markets, companies in the bottom quartile have lower EVA ratios.
In all the Asian markets and in Eastern Europe and Latin America, companies in the top quartile are at Price-to-Book premiums (an average of 54%) to the country average. In 14 of the 15 markets, companies in the lowest quartile had stocks trading at a discount (an average of 43%) to the market average.
In all the Asian markets that were surveyed, and Latin America, the companies in the top quartile had above average share price performance compared to the market sample average for the past three years (to end-2000). In all the markets covered, the companies in the top quartile provided, on average, 49 percentage points outperformance to their respective country sample averages. In 11 of the 15 markets, companies in the lowest quartile underperformed the market sample average over the last three years.
Share price outperformance was also significant over one and five years, however, this relationship is weaker than the three-year performance. In 11 of the 15 markets, the top corporate governance quartile companies outperformed over the past five years and over the year to end-200. In 12 of the the 15 markets, the bottom quartile underperformed. In 11 of the 15 markets, bottom quartile companies on average underperformed in share price performance.
