Department of Economics and Business Economics

Corporate governance ratings as a means to reduce asymmetric information

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

  • Claus Holm
  • Morten Balling, Denmark
  • Thomas Poulsen, Copenhagen Business School, Denmark
Can corporate governance ratings reduce problems of asymmetric information between companies and investors? To answer this question, we set out to examine the information basis for providing such ratings by reviewing corporate governance attributes that are required or recommended in laws, accounting standards, and codes, respectively. After that, we scrutinize and organize the publicly available information on the methodologies actually used by rating providers. However, important details of these methodologies are treated as confidential property, thus we approach the evaluation of corporate governance ratings as a means to reduce asymmetric information in a more general manner. We propose that the rating process may be seen as consisting of two general activities, namely a data reduction phase, and a data weighting, aggregation, and classification phase. Findings based on a Danish data-set suggest that rating providers by selecting relevant attributes in an intelligent way can improve the screening of companies according to governance quality. In contrast, it seems questionable that weighting, aggregation, and classification of corporate governance attributes considerably improve discrimination according to governance quality.
Original languageEnglish
JournalCogent Economics and Finance
Pages (from-to)1-16
Number of pages16
Publication statusPublished - 2014

Bibliographical note

Campus adgang til artiklen / Campus access to the article

    Research areas

  • Corporate Governance, Rating Agency, Asymmetric Information, Disclosure requirements, Investor information needs, C43, M40, G34

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