*We appreciate helpful comments received from the anonymous referee and Sudipto Dasgupta (the editor). Stouraitis thanks City University of Hong Kong for their financial support (project no. 9360075).
Does the Quality of Corporate Governance Affect Firm Valuation and Risk? Evidence from a Corporate Governance Scorecard in Hong Kong*
Article first published online: 16 NOV 2010
© 2010 The Authors. International Review of Finance © International Review of Finance Ltd. 2010
International Review of Finance
Volume 10, Issue 4, pages 403–432, December 2010
How to Cite
CHEUNG, Y.-L., STOURAITIS, A. and TAN, W. (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: 403–432. doi: 10.1111/j.1468-2443.2010.01106.x
- Issue published online: 16 NOV 2010
- Article first published online: 16 NOV 2010
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.