Does the quality of corporate governance affect firm valuation and risk? Evidence from a corporate governance scorecard in Hong Kong

Yan Leung Stephen CHEUNG, Aris STOURAITIS, Weiqiang TAN

Research output: Contribution to journalArticle

Abstract

Using Hong Kong firm data, we construct an index of corporate governance during 2002–2005, which scores the corporate governance practices of listed companies from the public shareholders' perspective based on the Organization for Economic Corporation and Development Principles of Corporate Governance. The findings show that family firms and firms with concentrated ownership structures are associated with bad corporate governance. The evidence also shows that these firms improve their corporate governance practices slower than their peers. Overall, the quality of corporate governance is very significant in explaining future company stock returns and risk. Good corporate governance is associated with both higher stock returns and with lower risk. Improvements in corporate governance are associated with significantly higher stock returns and lower company risk. Copyright © 2010 The Authors. International Review of Finance © 2010 International Review of Finance Ltd.
Original languageEnglish
Pages (from-to)403-432
JournalInternational Review of Finance
Volume10
Issue number4
DOIs
Publication statusPublished - Dec 2010

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Scorecard
Hong Kong
Corporate governance
Firm risk
Firm valuation
Stock returns
Shareholders
Concentrated ownership
Economics
International finance
Peers
Finance
Family firms
Listed companies
Ownership structure

Citation

Cheung Y. L., Stouraitis, A., & Tan, W. Q.. (2010). Does the quality of corporate governance affect firm valuation and risk? Evidence from a corporate governance scorecard in Hong Kong. International Review of Finance, 10(4), 403-432. doi: 10.1111/j.1468-2443.2010.01106.x