Corporate Governance and Stock Returns in China - A Long Horizon Event Study

Sammanfattning: This study investigates the relationship between the adoption of ‘good’ corporate governance practices and the subsequent stock performance of China’s publicly listed firms. Using the Shanghai Stock Exchange Corporate Governance Index (SSE CGI) that was launched in January 2008, a portfolio of CGI firms is benchmarked against a portfolio of matched conventional firms, their sector indices and market index for the four-year period following the launch. The results indicate that CGI firms were able to significantly outperform their respective sector indices as well as the Shanghai Composite Index, but were unable to significantly outperform their control firms matched on size and market-to-book ratios. Additionally, wealth relative cross-sectional regressions compliment these results, showing no significant support for the hypothesis that the acquisition of CG status is linked to subsequent superior performance. These results provide evidence that Chinese investors are not yet willing to pay a premium for CGI stocks.