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

37 Pages Posted: 1 Jun 2007

See all articles by J. Thomas Connelly

J. Thomas Connelly

Chulalongkorn University - Faculty of Commerce and Accountancy

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University

Stephen Yan-Leung Cheung

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

Lynda W. Q. Zhou

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

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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.

Suggested Citation

Connelly, J. Thomas and Limpaphayom, Piman and Cheung, Stephen Yan-Leung and Zhou, Lynda W. Q., Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market. Journal of International Financial Management & Accounting, Vol. 18, No. 2, pp. 86-122, Summer 2007, Available at SSRN: https://ssrn.com/abstract=990123 or http://dx.doi.org/10.1111/j.1467-646X.2007.01009.x

J. Thomas Connelly

Chulalongkorn University - Faculty of Commerce and Accountancy ( email )

Department of Banking and Finance
Phayathai Road
Bangkok, 10330
Thailand

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University ( email )

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

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)

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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