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Corporate Governance in China: a Step Forward


  • We thank an anonymous referee and John Doukas (the editor) for helpful comments. Cheung thanks City University of Hong Kong for the financial supports (research grants: Project No 7002173 and Project No 9360075). Limpaphayom is indebted to Charnchai Charuvastr of the Thai Institute of Directors Association for providing technical assistance. We have benefited from the comments of participants at the European Financial Management Symposium 2007 in Milan, Italy. Correspondence: Yan-Leung Cheung.


Recently, the presumed benefits of corporate governance have become one of the most contentious issues especially for emerging markets in Asia where institutional settings are quite different from other parts of the world. Using an internationally accepted benchmark (OECD's Principles of Corporate Governance, OECD, 2004), this study evaluates the progress of corporate governance practice of Chinese listed companies. A corporate governance index (CGI) is constructed to measure the quality of corporate governance practices of the 100 largest listed firms in China during 2004-2006. The results show that Chinese companies have been making progress in the corporate governance reform. The findings also show a positive relation between market valuation and overall corporate governance practices, as measured by the CGI, among these Chinese listed companies. Additional investigation reveals that the rights of shareholders are the main driver in the relationship.