Study shows share price dangers

Investment in compliance can yield returns that far outweigh the costs, according to research by Virsa, which supplies compliance...

Investment in compliance can yield returns that far outweigh the costs, according to research by Virsa, which supplies compliance tools for ERP systems.

Mark Feldman, senior vice-president at Virsa, said concerns about compliance with Sarbanes-Oxley regulations had led many US companies to restate their results, with damaging consequences for their share prices.

"When a company issues a restatement, its share price drops 9% in the first week. In the first three months its share price drops by 18% compared with what it was before," he said.

The impact of poor compliance on share price has attracted the attention of investors, who are increasingly demanding proof of good governance, said Feldman.

A survey of 135 analysts found that 65% were willing to pay a 10% premium on share price for firms that could prove they had proper governance systems in place.

Some 83% said governance influenced their investment decisions, 61% said they would avoid companies that had a low governance rating, and 95% said strong governance controls were crucial investment criteria.

On the basis of this research, whatever organisations spent complying with Sarbanes-Oxley, their likely returns were much greater, said Feldman.

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