Companies with good corporate governance generate higher shareholder returns than those which breach guidelines, according to research from the Association of British Insurers (ABI). The research claims that £100 invested in well-governed companies yields a return of £120, compared to £102 for those that are poorly governed.

Companies with good corporate governance generate higher shareholder returns than those which breach guidelines, according to research from the Association of British Insurers (ABI). The research claims that £100 invested in well-governed companies yields a return of £120, compared to £102 for those that are poorly governed.

The worst-offending companies, which breached guidelines in every year from 2003 to 2007, underperformed the average industry-adjusted return on assets by between three and five percentage points a year, claims the study.

ABI’s director of investment affairs Peter Montagnon says: ‘Our growing database has enabled us to look at the impact of corporate governance over a period of time.

‘The results confirm our belief that good governance produces better returns with less volatility – something that long-term savers need.’

The research examined 654 UK FTSE All-Share companies from 2003 to 2007. The results were adjusted to reflect a company’s performance against its industry.

According to ABI, the study confirms that governance drives performance and not vice versa. A lag of two to three years was identified between any breach and its impact on performance.