Empirical Study On Governance Premium Of Chinese Public Companies

Good corporate governance is a scarce resource of the company; it enhances the company's value and brings good returns to investors by arranging reasonable relationships among stakeholders for the company, improving the quality of corporate decisions. Many foreign research results show that investors are willing to pay higher prices for companies of good corporate governance and improve the existence of corporate governance premium. So, is there a corporate governance premium existing in the Chinese stock market? How much of governance premium did investors pay for Chinese public companies? This is not only academic and research focus discussed at home and abroad, but also the key evidence to inspire the initiative of Chinese public companies to improve corporate governance. Therefore, the paper makes researches on governance premium of Chinese public companies.At present, there is not a unified understanding of corporate governance in academic world. The paper defines corporate governance as a rights configuration system of checks and balances which is composed by the general meeting of shareholders, board of directors, board of supervisors and managers. Based on the definition of corporate governance, delimit governance premium as the degree that investors pay higher to companies with good corporate governance than companies with general level of corporate governance. On this basis, the paper analyzes premium mechanisms of t corporate governance from four dimensions of corporate governance as shareholders governance, board governance, board of supervisor governance and executive incentive; then elaborates impacts of the nature of the largest shareholder on the efficiency of corporate governance, combining with the actual situation of Chinese public companies. Those provide a theoretical support and guidance for empirical research of the paper. Firstly, combining with theoretical analysis, the paper takes 1158 Chinese public companies of 2010 as samples, select thirteen corporate governance variables from the shareholders, board of directors, board of supervisors and executives incentive, extracting six common factor as ownership concentration factor, executive compensation incentive factor, governance characteristics factor, corporate shares and strength of shareholder actions factor, managerial ownership factor and institutional investors shares, anyone of which can reflect the level of corporate governance from its one aspect. Construct a composite indicator to evaluate the overall level of corporate governance named corporate governance evaluation index P by common factor scores weighted by their variance contribution. Secondly, through regressing the relationship between common factors of corporate governance, evaluating index of corporate governance P and company value, finding average premium levels of ownership concentration factor, executive compensation incentive factor, corporate shares and strength of shareholder actions factor, managerial ownership factor and institutional investors shares are 0.213,0.266,0.014,0.094,0.212. And investors have paid a premium, the average degree of which is 0.689, for the governance of Chinese public companies. Then, the paper finds non-state public companies have a higher governance premium than state-owned public companies by using independent sample T test and regression analysis, and the state-owned property makes a negative impact on the efficiency of corporate governance. At last, for corporate governance problems of Chinese public companies found by the research, the paper proposes four policy recommendations which are as follows: establishing public companies with diversified equities company, to guide institutional investors to participate in corporate governance, re-build board of directors and the board of supervisors, reform on senior management incentives.