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Corporate Governance and Market Valuation in China

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  • Chong-En Bai

    ()

  • Qiao Liu

    ()

  • Joe Lu

    ()

  • Frank Song

    ()

  • Junxi Zhang

    ()

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    Abstract

    This paper studies the relationship between the governance mechanisms and the market valuation of publicly listed firms in China empirically. We 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. We 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 effect 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.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp564.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-564.

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    Length: 45 pages
    Date of creation: 20 Jun 2003
    Date of revision:
    Handle: RePEc:wdi:papers:2003-564

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    Related research

    Keywords: Corporate governance mechanisms; market valuation; corporate governance index; corporate governance premium;

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    Cited by:
    1. Kato, Takao & Long, Cheryl, 2006. "CEO Turnover, Firm Performance and Enterprise Reform in China: Evidence from New Micro Data," IZA Discussion Papers 1914, Institute for the Study of Labor (IZA).
    2. Malik, Saif Ullah, 2012. "Relationship between Corporate Governance Score and Stock Prices: Evidence from KSE- 30 Index Companies," MPRA Paper 44475, University Library of Munich, Germany.
    3. Stefanelli, Valeria & Matteo, Cotugno, 2010. "An Empirical Analysis on Board Monitoring Role and Loan Portfolio Quality Measurement in Banks," MPRA Paper 29766, University Library of Munich, Germany.
    4. Takao Kato & Cheryl Long, 2004. "Executive Compensation, Firm Performance, and State Ownership in China: Evidence from New Panel Data," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 2004-690, William Davidson Institute at the University of Michigan.

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