Investment Valuation and Corporate Governance

Companies with quality corporate governance systems can be better positioned to drive higher returns for investors.

Alternatively, poor corporate governance systems can negatively affect a company’s valuation.

Companies with poor corporate governance expose investors to the following risks:

  • Accounting Risk: a company with poor corporate governance may be more likely to issue misleading or inaccurate financial statements.
  • Asset Risk: without strong corporate governance, a company’s management may be more inclined to misuse assets.
  • Liability Risk: a company with poor corporate governance may enable managers to assume too much financial leverage and put equity value at risk.
  • Strategic Risk: without proper corporate governance, management may engage in business transactions which are not in the long term interests of equity valuation.