Corporate Governance Best Practice and Stock Performance: Case of CEE Companies

Abstract

Corporate governance (CG) becomes a very essential factor to consider prior to investing in the company. A number of studies proved its importance on the developed equity markets. However, intuitively corporate governance should gain more importance due to high degree of uncertainty because of the unstable environment. In order to assess the influence of corporate governance quality on Central and Eastern European companies‟ stock performance, the CG assessment model, which includes 21 evaluation criteria, was developed. Based on the model rating, the companies with the highest CG quality (top 25%) outperformed companies with the worst CG quality (bottom 25%) by 0.98% on a monthly basis during the period of 2008 - 2010. Study demonstrate that companies with good CG quality are able to offer lower risk