Companies with the poorest earnings quality and corporate governance underperformed the S&P 500 Index by 11 percent in 2005, according to a study by independent risk research firm RateFinancials Inc.
Using the firm's methodology, RateFinancials identified more than 50 companies whose financial statements rank low in terms of the quality and transparency of earnings disclosures and corporate governance. The companies range in size from automakers General Motors and Ford to companies with comparatively little market capitalization, such as content-provider Jupitermedia Corp. and personal care product manufacturer Helen of Troy.
"We continue to establish a strong correlation between poor stock performance and companies with questionable earnings quality," said founder and president Victor Germack, in a statement. "Investors who choose to ignore these warning signs have a high probability of sustaining losses." Germack also noted that an estimated 1,200 companies restated their earnings last year, nearly double the level of 2004.
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