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Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market

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Author Info
Yan-leung Cheung (City University of Hong Kong)
J. Thomas Connelly (Chulalongkorn University)
Piman Limpaphayom (Sasin Graduate Institute of Business Administration of Chulalongkorn University)
Lynda Zhou (City University of Hong Kong)
Abstract

This study develops a model to assess the corporate governance practices of listed companies in Hong Kong. We find that corporate governance is an important factor in explaining the market value of companies listed in Hong Kong. Based on the Revised OECD Principles of Corporate Governance (OECD, 2004) and the Recommended Best Practices (HKEx, 1999), we construct a corporate governance index (CGI) for 168 listed companies. The evidence shows that the companies¡¦ market value (marketto- book ratio, MTBV) is positive and significantly associated with their CGI. The effect is robust to the inclusion of control variables such as performance indicators. Our results imply that companies with better corporate governance are associated with higher market value in Hong Kong. A significant and positive relationship is further found between the transparency index and market value. Our results also suggest that investors are more concerned with corporate governance practices of China-related companies than they are for Hong Kong companies. In summary, this study provides strong evidence that good corporate governance practices are associated with higher firm value in Hong Kong.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 222005.

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Length: 38 pages
Date of creation: Dec 2005
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Handle: RePEc:hkm:wpaper:222005

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Keywords: Corporate governance; firm profitability; Hong Kong;

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  9. Steve Lin & Peter F. Pope & Steven Young, 2003. "Stock Market Reaction to the Appointment of Outside Directors," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 30(3-4), pages 351-382. [Downloadable!] (restricted)
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  13. Klapper, Leora F. & Love, Inessa, 2002. "Corporate governance, investor protection, and performance in emerging markets," Policy Research Working Paper Series 2818, The World Bank. [Downloadable!]
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  14. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February. [Downloadable!] (restricted)
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