WHEN investors evaluate whether to buy a company's shares, most consider traditional metrics such as earnings, return on equity and dividends. When presenting investment recommendations, analysts too tend to rely on such numerical parameters for their "buy'' or "sell'' calls, possibly with the addition of discounted cash flow analysis or an evaluation of the company's cash flows.

Few, however, incorporate another equally important dimension into their assessments - the company's standard of corporate governance. Yet experience and history have shown that major corporate failures occur often because of lapses in governance. This is a gap which should be addressed as there is a growing body of evidence that shows good governance has a significantly positive impact on share price performance.

In a December 2016 study, "Good governance driving corporate performance'', Deloitte and Dutch business school Nyenrode found correlation between several governance variables and corporate performance. The variables were board independence, board diversity, remuneration, CEO characteristics, oversight and ownership structure. Another study, published in the International Journal of Business and Social Science in 2012, found a significant link between hypothetical governance scores and stock prices. The author concluded that better governed firms have higher stock prices. All this makes intuitive sense, since there is a greater chance of a well-governed company attracting more capital than a poorly governed one. Long-term investors like fund managers would quite naturally pick firms that are more transparent, provide greater access to senior management, and observe governance best practices.