Does the Quality of Corporate Governance Affect Firm Valuation and Risk? Evidence from a Corporate Governance Scorecard in Hong Kong


  • *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).

Yan-Leung Cheung
School of Business
Hong Kong Baptist University
Room WLB801, 8/F
The Wing Lung Bank Bldg for Business Studies
Renfrew Road, Kowloon Tong
Kowloon, Hong Kong


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.