Do investors really value corporate governance? Evidence from the Hong Kong market

Yan Leung Stephen CHEUNG, J. Thomas CONNELLY, Piman LIMPAPHAYOM, Lynda ZHOU

Research output: Contribution to journalArticles

68 Citations (Scopus)

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. Copyright © 2007 Blackwell Publishing Ltd.
Original languageEnglish
Pages (from-to)86-122
JournalJournal of International Financial Management & Accounting
Volume18
Issue number2
DOIs
Publication statusPublished - 2007

Citation

Cheung, Y. L., Connelly, J. T., Limpaphayom, P. L. & Zhou, L. (2007). Do investors really value corporate governance? Evidence from the Hong Kong market. Journal of International Financial Management & Accounting, 18(2), 86-122. doi: 10.1111/j.1467-646X.2007.01009.x

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