Does corporate governance matter for stock returns?

Investors are increasingly recognizing the importance of corporate governance in their investment decision-making.

The relationship between corporate governance and stock returns has been a significant subject of debate and study in financial literature. Traditionally, companies with good corporate governance practices tended to perform better in the stock market. This positive association between corporate governance and stock returns is due to the fact that companies with strong governance structures make better business decisions, manage risks more effectively, and generate more sustainable long-term value for shareholders. Investors often prefer to invest in such companies because they perceive them as less risky and more likely to provide stable returns over time.