Corporate Governance and Firm Valuations in China

35 Pages Posted: 10 Jul 2003

See all articles by Chong-En Bai

Chong-En Bai

The University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute

Qiao Liu

The University of Hong Kong - School of Economics and Finance; Peking University - Guanghua School of Management

Joe Zhou Lu

The University of Hong Kong - School of Business

Frank M. Song

The University of Hong Kong - School of Economics and Finance

Junxi Zhang

The University of Hong Kong - School of Economics and Finance; National University of Singapore (NUS) - Department of Economics

Date Written: November 2002

Abstract

Does a firm's corporate governance practice affect its market value? Are shareholders in China willing to pay a premium for good governance standard? How is the premium compared with that in other emerging markets? The paper examines these important corporate governance issues in China. We identify a comprehensive set of governance mechanisms for China's listed companies and construct relevant measures for each of them. We then create a rating index, named the G index, to reflect the overall level of governance practice for China's listed companies. We find that better-governed companies according to our index are associated with higher stock market valuation. We further identify the effects on valuation of each corporate governance mechanism. Our results indicate that good corporate governance matters greatly in China's emerging stock market and Chinese investors are willing to pay a significant premium for better governance standard.

Keywords: Corporate governance, firm valuation, China, the G index

JEL Classification: G34, G32

Suggested Citation

Bai, Chong-En and Liu, Qiao and Lu, Joe Zhou and Song, Frank M. and Zhang, Junxi Jack, Corporate Governance and Firm Valuations in China (November 2002). Available at SSRN: https://ssrn.com/abstract=361660 or http://dx.doi.org/10.2139/ssrn.361660

Chong-En Bai (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

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University of Michigan - William Davidson Institute ( email )

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Ann Arbor, MI 48109-1234
United States

Qiao Liu

The University of Hong Kong - School of Economics and Finance ( email )

School of Economics and Finance
Pokfulam
Hong Kong
Hong Kong
852-2859-1059 (Phone)
852-2548-1152 (Fax)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Joe Zhou Lu

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Frank M. Song

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Junxi Jack Zhang

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
(852) 2859-2192 (Phone)
(852) 2548-1152 (Fax)

National University of Singapore (NUS) - Department of Economics ( email )

10 Kent Ridge Crescent
Singapore 119260
Republic of Singapore

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