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An Empirical Study on Corporate Governance and Market Valuation in China

Author

Listed:
  • BAI Chong-En

    (School of Economics and Management, Tsinghua University, Beijing 100084, PRC and Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China)

  • LIU Qiao

    (Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China)

  • LU Joe

    (Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China)

  • SONG Frank M.

    (Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China)

  • ZHANG Junxi

    (Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China)

Abstract

This paper empirically studies the relationship between the governance mechanisms and the market valuation of publicly listed firms in China. The authors construct measures for corporate governance mechanisms and measures of market valuation for all publicly listed firms on the two stock markets in China by using data from the firm s annual reports. They then investigate how the market-valuation variables are affected by the corporate governance variables while controlling for a number of factors commonly considered in market valuation analysis. A corporate governance index is also constructed to summarize the information contained in the corporate governance variables. The index is found to have statistically and economically significant effects on market valuation. The analysis indicates that investors pay a significant premium for well-governed firms in China, benefiting firms that improve their governance mechanisms.

Suggested Citation

  • BAI Chong-En & LIU Qiao & LU Joe & SONG Frank M. & ZHANG Junxi, 2006. "An Empirical Study on Corporate Governance and Market Valuation in China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 1(1), pages 83-111, March.
    • Handle: RePEc:fec:journl:v:1:y:2006:i:1:p:83-111
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    File URL: http://journal.hep.com.cn/fec/EN/10.1007/s11459-005-0011-0
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    Citations

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    Cited by:

    1. Yi‐Hui Tai & Nen‐Chen Richard Hwang, 2020. "Market Reactions to Corporate Governance Ranking Announcements: Evidence from Taiwan," Abacus, Accounting Foundation, University of Sydney, vol. 56(4), pages 627-648, December.
    2. Stefan Cristian Gherghina, 2015. "Corporate Governance Ratings and Firm Value: Empirical Evidence from the Bucharest Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 97-110.
    3. Steven Buigut, 2015. "The Effect of Zimbabwe's Multi-Currency Arrangement on Bilateral Trade: Myth Versus Reality," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 690-700.
    4. Jiafeng Zong & Man Guo & Zongjian Lin & Qi Yang, 2020. "Senior Executives' Political Connections and Corporate Environmental Behavior—Empirical Research From the Chinese A‐Share Market," Review of Policy Research, Policy Studies Organization, vol. 37(4), pages 556-571, July.
    5. Shoaib Ali & Hafiz Muhammad Naveed & Abubakar Khaliq, 2020. "Does an External Governance Framework Enhance the Performance of Pakistan's Banking Sectors? Foreign Ownership as Moderator," Economy, Asian Online Journal Publishing Group, vol. 7(2), pages 110-118.
    6. Anna P. I. Vong & Duarte Trigueiros, 2014. "Reversal in the relative performance of state- and legal person-owned companies during the Chinese split share structure reform," Applied Economics, Taylor & Francis Journals, vol. 46(15), pages 1728-1750, May.
    7. Yunwei Li & Wenjing Long & Xiao Ning & Yumeng Zhu & Yifan Guo & Zhou Huang & Yu Hao, 2022. "How can China's sustainable development be damaged in consequence of financial misallocation? Analysis from the perspective of regional innovation capability," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 3649-3668, November.

    More about this item

    Keywords

    corporate governance mechanisms; market valuation; corporate governance index; corporate governance premium;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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