Good corporate governance: Does it pay in Peru?

This paper aims to discover whether or not good corporate governance practices generate positive returns on the Lima Stock Exchange (LSE). The study examines two questions. First, does the announcement that a firm is in the good corporate governance index (GCGI) increase its stock price and offer a positive abnormal return? Second, from the point of view of socially responsible investing does an investment portfolio of Peruvian firms with good corporate governance practices offer better performance than a portfolio of firms with bad corporate governance? The findings from an event study show that the announcement of a firm's inclusion in the GCGI yields a positive abnormal return in a range of 0.95% to1.11% on the day of the announcement. Furthermore, firms with good corporate governance practices that are in a democratic portfolio outperform firms with bad corporate governance practices in an autocratic portfolio with an average monthly return of 3 % during the period of January 2004 to December 2008.