Title: Corporate Governance and Market Valuation in China
Reference Number: 1096
Publication Date: April 2004
JEL Classifcation: G34, G32

Chong-En Bai, Qiao Liu, Joe Lu, Frank Song, and Junzi Zhang
The University of Hong Kong


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.


Published in Journal of Comparative Economics 32:4 (2004), pp. 599-616.

Key words: Corporate governance mechanisms, market valuation, corporate governance index, corporate governance premium

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Last modified: 01/24/2007