Friday, February 20, 2009

Corporate governance may weigh more in future IPO grading

There are expectations that in coming time rating agencies will consider corporate governance as a key aspect of grading in initial public offers (IPO). According to rating agencies official, importance to corporate governance is increasing as a parameter in IPO grading for assigning a higher weightage. This is mainly due to potential investors, especially retail, in an IPO have very little information about the company's or its promoter's background and track-record.

Corporate governance issue came in limelight especially after the accounting scandal in Satyam and charges of irregularities in Maytas Infra, which was listed during the peak of the bull run.

In a study of 29 IPOs by CRISIL graded by the ratings agency since May 2007, corporate governance structures were found to be 'weak' in close to 50% of the companies evaluated.

Head-equities, CRISIL Research, Chetan Majithia said in a statement, "While not the sole determining factor, the quality of corporate governance as assessed by CRISIL may significantly influence the CRISIL IPO grade, beyond what the company's business prospects and financials may suggest,". source:

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