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Corporate Governance and Market Valuation in China

Author

Listed:
  • Chong-En Bai

    ()

  • Qiao Liu

    ()

  • Joe Lu

    ()

  • Frank Song

    ()

  • Junxi Zhang

    ()

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.

Suggested Citation

  • Chong-En Bai & Qiao Liu & Joe Lu & Frank Song & Junxi Zhang, 2003. "Corporate Governance and Market Valuation in China," William Davidson Institute Working Papers Series 2003-564, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2003-564
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39950/3/wp564.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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 2004-690, William Davidson Institute at the University of Michigan.
    2. 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.
    3. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2007. "How ownership and corporate governance influence chief executive pay in China's listed firms," Journal of Business Research, Elsevier, vol. 60(7), pages 776-785, July.
    4. 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).
    5. 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.
    6. repec:eee:jiaata:v:18:y:2009:i:1:p:1-13 is not listed on IDEAS

    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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