Stock performance of companies with superior and inferior practices of corporate governance

Abstract

For investors who own stock portfolios, a healthier business climate brought about by superior corporate governance may better safeguard investments. An investigation was made to determine if a portfolio of stocks of companies with superior corporate governance (Type I) had a better performance than one of companies with inferior governance (Type II). Randomly assembled portfolios were evaluated by the Sharpe Index (IS) and showed that the Type I portfolio had a higher IS and a higher probability of return above the SELIC rate, 56.49%, than the Type II portfolio where this probability was less, 55.20%. Although not highly significant, results pointed to an advantage for the stock portfolio of companies with the superior corporate governance