Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market

HKIMR Working Paper No. 22/2005

38 Pages Posted: 23 Dec 2006

See all articles by J. Thomas Connelly

J. Thomas Connelly

Chulalongkorn University - Faculty of Commerce and Accountancy

Stephen Yan-Leung Cheung

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University

Lynda W. Q. Zhou

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

This study develops a model to assess the corporate governance practices of listed companies in Hong Kong. We find that corporate governance is an important factor in explaining the market value of companies listed in Hong Kong. Based on the Revised OECD Principles of Corporate Governance (OECD, 2004) and the Recommended Best Practices (HKEx, 1999), we construct a corporate governance index (CGI) for 168 listed companies. The evidence shows that the companies' market value (marketto- book ratio, MTBV) is positive and significantly associated with their CGI. The effect is robust to the inclusion of control variables such as performance indicators. Our results imply that companies with better corporate governance are associated with higher market value in Hong Kong. A significant and positive relationship is further found between the transparency index and market value. Our results also suggest that investors are more concerned with corporate governance practices of China-related companies than they are for Hong Kong companies. In summary, this study provides strong evidence that good corporate governance practices are associated with higher firm value in Hong Kong.

Keywords: Corporate governance, firm profitability, Hong Kong

JEL Classification: G3, G34

Suggested Citation

Connelly, J. Thomas and Cheung, Stephen Yan-Leung and Limpaphayom, Piman and Zhou, Lynda W. Q., Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market (December 2005). HKIMR Working Paper No. 22/2005, Available at SSRN: https://ssrn.com/abstract=953330 or http://dx.doi.org/10.2139/ssrn.953330

J. Thomas Connelly

Chulalongkorn University - Faculty of Commerce and Accountancy ( email )

Department of Banking and Finance
Phayathai Road
Bangkok, 10330
Thailand

Stephen Yan-Leung Cheung (Contact Author)

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 2788 7960 (Phone)
+852 2788 8806 (Fax)

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University ( email )

Chula 12, Phyathai Road
Bangkok, 10330
Thailand
662 2184058 (Phone)
662 2153797 (Fax)

Lynda W. Q. Zhou

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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