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An Empirical Study on Corporate Governance and Market Valuation in China |
| BAI Chong-En1, LIU Qiao2, LU Joe2, SONG Frank M.2, ZHANG Junxi2 |
| 1.School of Economics and Management, Tsinghua University, Beijing 100084, PRC and Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China; 2.Faculty of Business and Economics, The University of Hong Kong, Hong Kong, China; |
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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.
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Issue Date: 05 March 2006
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