Four key CEO practices can increase corporate value, S&P Global Market Intelligence report finds

Rhea-AI Summary

On October 19, 2020, S&P Global Market Intelligence released a study titled Sweet Spots in the C-Suite, outlining best practices for CEOs to enhance shareholder value. Key findings include that balancing profitability and growth is crucial, as rapid asset growth can harm performance. Insider stock purchases indicate management confidence, benefiting market sentiment. Additionally, smaller M&A deals are preferable to large ones, which can hinder returns. Finally, strategies emphasizing cash return to shareholders through buybacks and dividends yield positive excess returns.

Positive

• Successful companies balance profitability and growth.
• Insider stock purchases signal management confidence, leading to positive market reactions.
• Smaller M&A transactions are more successful than large acquisitions, which can negatively impact financial performance.
• Strategies that return cash to shareholders through buybacks and dividends yield positive excess returns.

Negative

• Large mergers and acquisitions can negatively impact growth and profitability for years.

NEW YORK, Oct. 19, 2020 /PRNewswire/ -- A new research study published by S&P Global Market Intelligence's Quantamental Research group titled, Sweet Spots in the C-Suite: Executive Best Practices for Shareholder Friendly Firms, highlights four types of executive policy that drive corporate value. The four key executive policies include profitability vs. growth decisions, mergers & acquisitions (M&A) policy, return of cash to shareholders, and insider stock ownership. These policies can serve as a checklist for stakeholders to determine whether a CEO is likely to increase corporate prosperity. 

"Businesses are reassessing their strategies to ensure resilience in a time of uncertainty, and our research finds specific management practices can serve as guidelines for shareholder value generation in this new post-pandemic world," said David Pope, Managing Director of Quantamental Research at S&P Global Market Intelligence. "Leveraging our unique datasets coupled with deep quantitative research analysis, our findings demonstrate empirically how specific best practices can result in increased corporate value over time."

Key highlights of the report include:

• Successful companies balance growth and profitability. Companies that grow assets too quickly tend to underperform due to resulting operational and financial difficulties. In contrast, slow-to-moderate asset growth companies perform best over time as managers of such companies pursue growth until it is no longer profitable and then return cash to shareholders.
• Insider stock purchases are beneficial as they signal to investors that management is confident in both a company's prospects and its current valuation. Net insider buys are treated positively by the market, and the larger the purchase, relative to market cap, the larger the market response, in terms of excess returns over time.
• Large mergers and acquisitions often negatively impact growth, profitability, and returns, sometimes for years after the change. The study found that smaller M&A transactions done with cash by financially disciplined companies (e.g. buying back shares, avoiding serial acquisitions) tend to be more successful than larger stock deals.
• Pursuing strategies that return cash to shareholders is often rewarded by investors. Share buybacks and dividend increases result in positive excess returns as they signal good financial health and prospects, while dividend cuts and cancellations lead to sharp underperformance.

Developed by S&P Global Market Intelligence's Quantamental Research team, the study analyzed datasets available through Xpressfeed™ such as Compustat Point-in-Time Fundamentals, Capital IQ Estimates, and Professionals Data. This report is now available on the S&P Global Marketplace and other flagship products including the Market Intelligence platform and S&P Capital IQ.

To access the full report, please contact pressinquiries.mi@spglobal.com.

About S&P Global Market Intelligence
At S&P Global Market Intelligence, we understand the importance of accurate, deep and insightful information. We integrate financial and industry data, research and news into tools that help track performance, generate alpha, identify investment ideas, perform valuations and assess credit risk. Investment professionals, government agencies, corporations and universities around the world use this essential intelligence to make business and financial decisions with conviction.

S&P Global Market Intelligence is a division of S&P Global (NYSE: SPGI), the world's foremost provider of credit ratings, benchmarks and analytics in the global capital and commodity markets, offering ESG solutions, deep data and insights on critical business factors. S&P Global has been providing essential intelligence that unlocks opportunity, fosters growth and accelerates progress for more than 160 years. For more information, visit www.spglobal.com/marketintelligence.

Media Contacts
Amanda Oey
S&P Global Market Intelligence
Amanda.oey@spglobal.com
(212) 438-1904

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SOURCE S&P Global Market Intelligence

FAQ

What are the key CEO practices identified in the S&P Global Market Intelligence report dated October 19, 2020, related to SPGI?

The report identifies balancing profitability and growth, emphasizing insider stock purchases, favoring smaller M&A deals, and returning cash to shareholders as key practices.

How do insider stock purchases affect SPGI's stock value according to the report?

Insider stock purchases are positively viewed by the market, indicating management's confidence in the company, which can lead to higher stock returns.

What impact do large mergers and acquisitions have on SPGI as per the new research?

The research suggests that large M&A transactions can negatively affect growth, profitability, and returns, sometimes lasting for years.

What are the benefits of returning cash to shareholders for SPGI?

Returning cash through buybacks and dividends is associated with positive excess returns and signals strong financial health.