Good corporate governance matters more than size

by Bangkok Post, November 25th, 2010.

New index generates higher returns

Forget market cap or complicated financial ratios. When it comes to beating the market, put your money where good corporate governance is, according to the Thai Institute of Directors (Thai IOD). Stock investors should weight their investments in companies with excellent corporate governance (CG) track records as they could generate higher returns as proven by IOD/CG Index, says the Thai IOD.

The IOD/CG Index is an experimental investment portfolio created by the institute to be used as another criterion for investment. It comprises shares of the companies scoring more than 90% in the institute’s CG ranking. The index was developed to attract more investment in companies with good CG while encouraging the companies to further improve their practices.

According to the IOD/CG Index, from January 2007 to October 2010, an investor who weighted his investment by market value or focused on companies with large market capitalisation would get an annualised 16.78% return. But if the same investor put the same money in the companies with good CG regardless of their sizes, the return would be 20.48%.

“The index we developed can be used by retail investors, who can adjust their portfolios based on the index,” said Thanomsak Suwannoi, a consultant for the corporate governance rating (CGR) project of the Thai IOD. The index will be revised when a CG report review is made, which is scheduled next year. (continue reading… )

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