Corporate Governance and Market Valuation in China

45 Pages Posted: 25 May 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

Multiple version iconThere are 2 versions of this paper

Date Written: April 2003

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 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 Market Valuation in China (April 2003). Available at SSRN: https://ssrn.com/abstract=393440 or http://dx.doi.org/10.2139/ssrn.393440

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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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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