Does Corporate Governance Predict Future Performance? Evidence from Hong Kong

Authors

  • Yan-Leung Cheung,

    1. Yan-Leung Cheung is a Chair Professor in the School of Business at Hong Kong Baptist University, Kowloon, Hong Kong.
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  • J. Thomas Connelly,

    1. J. Thomas Connelly is an Assistant Professor in the Department of Banking and Finance at Chulalongkorn University, Bangkok, Thailand.
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  • Ping Jiang,

    1. Ping Jiang is an Associate Professor at the School of International Trade and Economics at the University of International Business and Economics, Beijing, China.
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  • Piman Limpaphayom

    1. Piman Limpaphayom is the Finance Department Head at Sasin Graduate Institute of Business Administration of Chulalongkorn University, Bangkok, Thailand.
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  • The authors are indebted to the Hong Kong Institute of Directors for financial support and Charnchai Charuvastr of the Thai Institute of Directors Association for providing technical assistance. We also thank the anonymous referee, Paul Malatesta, Joseph Fan, and participants at the 2008 American Accounting Association meeting, the OECD 2008 Asian Corporate Governance Roundtable, and the 2009 Chulalongkorn University Accounting and Finance Symposium for valuable comments and suggestions. Jiang thanks the University of International Business and Economics for the financial support (211 research grant: Project No. 73100008). We thank Andrew Lau, Cheong Wing Cheung, Ho Ka Ho, Jan Chan, Louise Zhang, and Patrick Tsang for data collection and thank Weiqiang Tan for his excellent research support. Remaining errors are our own.

Abstract

This study uses time-series data to examine the relation between changes in the quality of corporate governance practices and subsequent market valuation among large listed companies in Hong Kong. The results indicate that firms that exhibit improvements in the quality of corporate governance display a subsequent increase in market valuation, whereas firms that exhibit deterioration in the quality of corporate governance practices tend to encounter a decline in market valuation. Additionally, the impact is greater for firms that are included in the MSCI index or with a China affiliation. The results provide evidence in support of the notion that good corporate governance can predict future market valuation.

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