The effects of corporate governance on earnings quality and corporate valuation : evidence from Hong Kong and China

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The effects of corporate governance on earnings quality and corporate valuation : evidence from Hong Kong and China

 

Author: Luk, Wai Yi Juliana
Title: The effects of corporate governance on earnings quality and corporate valuation : evidence from Hong Kong and China
Degree: D.Acc.
Year: 2005
Subject: Hong Kong Polytechnic University -- Dissertations.
Corporate governance -- China.
Corporate governance -- China -- Hong Kong.
Corporate profits -- China.
Corporate profits -- China -- Hong Kong.
Corporations -- Valuation -- China.
Corporations -- Valuation -- China -- Hong Kong.
Department: Graduate School of Business
Pages: vii, 147 leaves ; 31 cm.
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2088949
URI: http://theses.lib.polyu.edu.hk/handle/200/2171
Abstract: This two-tiered study on the Chinese and Hong Kong companies listed on the Hong Kong Stock Exchange focuses on the effects of corporate governance on earnings quality and corporate valuation at the country and firm levels. Results from the empirical analysis confirm that the Chinese firms with weaker corporate governance and investor protection have lower earnings quality (higher level of earnings management and lower value relevance of earnings) and lower corporate valuation at the country level. Evidence also shows that the effects of various governance mechanisms on earnings management and corporate valuation at the firm level are not statistically significant in both the Chinese and Hong Kong firms. Hence, results from this study suggest that corporate governance at the country level is more important and effective, but corporate governance does not have significant impact at the firm level. It shows that legal system and institutional structures at the country level affect the effectiveness of corporate governance at the firm level. The critical role of institutional structures in improving investor protection in transition economies is demonstrated here. Based on the results, this study proposes a new explanation for the positive association between investor protection and corporate valuation. As investors are aware of opportunistic earnings management when investor protection is poor, they are only willing to pay economic values of equities, which are less than the accounting values. Therefore, lower corporate valuation when investor protection is poor.

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