High governance scores have positive effects on firms’ earnings. A 1-point improvement of MSCI G-score is associated with a 0.7% improvement in ROE for Russell 1000 stocks and 0.32~0.45% improvement in ROE for STOXX 600 stocks.
Governance Scores Across the Globe
The Relationship Between Governance and Earnings
Sources: Bloomberg Intelligence, BakerAvenue. As of 6/22/23.
Sources: Barclays, BakerAvenue. As of 6/6/23.
Q1 = Those with the highest absolute Governance scores (best vs. worst) and improvers (momentum in scores or year-to-year changes), Q5 is the worst scores and the biggest deteriorations, on a sector and beta neutra basis. Time period = June 30, 2017 to April 27, 2023. Analysis is sector & beta neutral. Our indexes have at least 30 companies per quintile with data, except for INL, which is between 20 and 30.
MSCI Governance Scores Structure
Note: ROE in %. Standard error and t-stat are robust estimatations, adjusted for serial correlation.
Source: Refenitiv, World Scope, Compustat, MSCI, Barclays Research, BakerAvenue. As of 6/6/23.
Summary Statistics of the Governance Effect on ROE (Exposure-Matched Approach)