Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market |
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| Authors: | Yan-Leung Cheung J Thomas Connelly Piman Limpaphayom Lynda Zhou |
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| Institution: | Department of Economics and Finance, City University of Hong Kong, Tat Chee Avenue, Kowloon Tong, Kowloon, Hong Kong e-mail:; Faculty of Commerce and Accountancy, Chulalongkorn University, Bangkok 10330, Thailand e-mail:; Sasin Graduate Institute of Business Administration, Chulalongkorn University, Sasa Patasala Building, Phyathai Road, Pathumwan, Bangkok 10330, Thailand e-mail:; Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Kowloon, Hong Kong e-mail: |
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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. |
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