Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market


  • The authors are indebted to Herbert Hui, Peter Wong, and the Hong Kong Institute of Directors for financial support, and Charnchai Charuvastr of the Thai Institute of Directors Association for providing technical assistance. This project was substantially supported by a grant from City University of Hong Kong (Project no. 7001912). We also thank Cindy Chen, Sam Lam, Simon Lam, Justin Liang, Sarah Wan, and Sam Yang for their research support.


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.