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Corporate Governance and Market Valuation in China
Chong-En Bai University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute Qiao Liu University of Hong Kong - School of Economics and Finance Joe Zhou Lu University of Hong Kong - School of Business Frank M. Song University of Hong Kong - School of Economics and Finance Junxi Zhang University of Hong Kong - School of Economics and Finance; National University of Singapore (NUS) - Department of Economics April 2003 William Davidson Institute Working Paper No. 564 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.
Keywords: Corporate governance mechanisms, market valuation, corporate governance index, corporate governance premium JEL Classifications: G34, G32 Working Paper SeriesDate posted: May 25, 2003 ; Last revised: January 27, 2005Suggested CitationContact Information
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