Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences, Second Edition

13. Corporate Governance Ratings

Governance ratings is a relatively new industry in which consulting companies develop quantitative metrics to measure the effectiveness of a company’s governance system. The inputs in these models are based on governance attributes that we have discussed throughout this book, including the structure of the board, elements of the executive compensation plan, antitakeover provisions, and other features. Researchers have also developed indices that rely on similar inputs. The question remains whether governance ratings and indices accurately measure governance quality and predict the likelihood of negative outcomes.

In this chapter, we discuss the methodology used to develop governance ratings and evaluate their ...