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Do Investors Really Value Corporate Governance? Evidence from the Hong Kong MarketJ. Thomas ConnellyChulalongkorn University - Faculty of Commerce and Accountancy Piman LimpaphayomSasin GIBA of Chulalongkorn University Stephen Yan-Leung CheungCity University of Hong Kong (CityUHK) - Department of Economics & Finance Lynda W. Q. ZhouCity University of Hong Kong (CityUHK) - Department of Economics & Finance Journal of International Financial Management & Accounting, Vol. 18, No. 2, pp. 86-122, Summer 2007 Abstract: To examine the relation between corporate governance and firm value, we develop an instrument to assess the corporate governance practices of listed companies in Hong Kong. Based on the Revised OECD Principles of Corporate Governance (OECD) and the Code of Best Practices (HKEx), we construct a corporate governance index (CGI) for Hong Kong listed companies. Unlike measures used in other studies, the CGI score reflects the presence of good corporate governance practices as well as variation in the quality of corporate governance practices. Empirical evidence shows that a company's market valuation is positively related to its overall CGI score, a composite measure of a firm's corporate governance practices. We also find that the transparency component of the CGI score drives the relation with market valuation. In summary, this study provides supporting evidence for the notion that, in Hong Kong, good corporate governance practices are consistent with value maximization.
Number of Pages in PDF File: 37 Accepted Paper SeriesDate posted: June 1, 2007Suggested CitationContact Information
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