Corporate Governance and Market Valuation in China

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.

[1]  Wei Li,et al.  The Impact of Economic Reform on the Performance of Chinese State Enterprises: 1980-1989 , 1997 .

[2]  Theodore Groves,et al.  China's Evolving Managerial Labor Market , 1995, Journal of Political Economy.

[3]  Eric Maskin,et al.  Soft budget constraints and transition , 1999 .

[4]  Changqi Wu,et al.  The Ownership School vs. the Management School of State Enterprise Reform: Evidence from China , 2002 .

[5]  Lorne Jeremy Zeiler.  Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature , 2004 .

[6]  Myeong-Hyeon Cho,et al.  Ownership structure, investment, and the corporate value: an empirical analysis , 1998 .

[7]  A. Shleifer,et al.  Investor Protection and Corporate Valuation , 1999 .

[8]  LI DAVIDD..  The Colour of the Cats , 2002 .

[9]  B. Scholtens,et al.  Comparing financial systems. , 2000 .

[10]  Stephen W. Pruitt,et al.  A Simple Approximation of Tobin's Q , 1994 .

[11]  Florencio López‐de‐Silanes,et al.  Law and Finance , 1996, Journal of Political Economy.

[12]  Arne Bigsten,et al.  Ownership Structure and Determinants of Technical Efficiency: An Application of Data Envelopment Analysis to Chinese Enterprises (1986-1990) , 1998 .

[13]  John M. Barron,et al.  Executive compensation. , 1990, Trustee : the journal for hospital governing boards.

[14]  Benjamin E. Hermalin,et al.  Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature , 2000 .

[15]  Shorey Peterson,et al.  The Modern Corporation and Private Property. , 1933 .

[16]  Y. Qian,et al.  Institutional Environment, Community Government, and Corporate Governance: Understanding China's Township-Village Enterprises , 1998 .

[17]  Diane K. Denis,et al.  International Corporate Governance , 2003, Journal of Financial and Quantitative Analysis.

[18]  Stephen Gary Marks,et al.  Separation of Ownership and Control , 2014 .

[19]  Theodore Groves,et al.  Autonomy and Incentives in Chinese State Enterprises , 1994 .

[20]  Qian Sun,et al.  China share issue privatization: the extent of its success , 2003 .

[21]  P. W. Macavoy,et al.  The Active Board of Directors and Improved Performance of the Large Publicly-Traded Corporation , 1998 .

[22]  E. H. Kim,et al.  To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation , 2003 .

[23]  Leora F. Klapper,et al.  Corporate Governance, Investor Protection and Performance in Emerging Markets , 2002 .

[24]  Andrei Shleifer,et al.  Corporate Ownership Around the World , 1998 .

[25]  Yan Wang,et al.  Ownership structure and corporate governance in Chinese stock companies , 1999 .

[26]  A. Shleifer,et al.  Legal Determinants of External Finance , 1997 .

[27]  Joseph T. Mahoney,et al.  Board structure, antitakeover provisions, and stockholder wealth , 1997 .

[28]  Sanjai Bhagat,et al.  The Uncertain Relationship between Board Composition and Firm Performance , 1997 .

[29]  L. Xu.  Control, Incentives and Competition: The Impact of Reform on Chinese State‐owned Enterprises , 2000 .

[30]  M. Weisbach,et al.  The Influence of Institutions on Corporate Governance through Private Negotiations: Evidence from TIAA-CREF , 1997 .

[31]  Yingyi Qian,et al.  Reforming corporate governance and finance in China , 1994 .

[32]  Paul A. Gompers,et al.  CORPORATE GOVERNANCE AND EQUITY PRICES , 2002 .

[33]  L. Qiao,et al.  Earnings Management to Tunnel: Evidence from China's Listed Companies , 2003 .

[34]  A. Shleifer,et al.  A Survey of Corporate Governance , 1996 .

[35]  Larry H. P. Lang,et al.  The Separation of Ownership and Control in East Asian Corporations , 1999 .

[36]  Qiao Liu,et al.  Bad News is Good News: Propping and Tunnelling Evidence from China , 2004 .

[37]  A. Shleifer,et al.  Large Shareholders and Corporate Control , 1986, Journal of Political Economy.

[38]  B. Turner.  Organization for Economic Co-Operation and Development (OECD) , 2001 .

[39]  M. Shirley,et al.  The Empirical Effects of Performance Contracts: Evidence from China , 1997 .

[40]  Jonathan M. Karpoff,et al.  Corporate Governance and Shareholder Initiatives: Empirical Evidence , 1996 .

[41]  Kevin J. Murphy.  Chapter 38 Executive compensation , 1999 .

[42]  T. Wong,et al.  Financial Packaging of IPO Firms in China , 2000 .

[43]  B. Black,et al.  Does Corporate Governance Matter? A Crude Test Using Russian Data , 2001 .

[44]  P. Joy,et al.  Gompers, and Andrew Metrick. , 2003 .

[45]  Sung Wook Joh,et al.  Corporate governance and firm profitability: evidence from Korea before the economic crisis , 2003 .

[46]  To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation , 2003 .

[47]  A. Shleifer,et al.  Management Ownership and Market Valuation: An Empirical Analysis , 1988 .

[48]  Abbie J. Smith,et al.  Financial Accounting Information and Corporate Governance , 2001 .

[49]  Zhigang Tao,et al.  A Multitask Theory of State Enterprise Reform , 2000 .

[50]  Lihui Tian,et al.  Government Shareholding and the Value of China ’ s Modern Firms By : , 1999 .

[51]  Anming Zhang,et al.  Impact of Ownership and Competition on the Productivity of Chinese Enterprises , 2001 .

[52]  Yingyi Qian,et al.  Enterprise reform in China: agency problems and political control , 1996 .

[53]  Dennis C. Carey,et al.  Director Ownership, Corporate Performance, and Management Turnover , 1998 .