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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, 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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    Cited by:

    1. 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.

    More about this item

    Keywords

    corporate governance mechanisms; market valuation; corporate governance index; corporate governance premium;

    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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