Corporate governance and capital market risk: New evidence from firm-specific measures among Chinese listed companies

Ziyu Li, Zhan Wang, Xiang Gao

Article ID: 7413
Vol 8, Issue 9, 2024

VIEWS - 80 (Abstract) 52 (PDF)

Abstract


 This paper empirically analyzes the relationship between corporate governance and capital market risk using A-share listed companies in China’s Shanghai and Shenzhen markets from 2008 to 2022 as a research sample. The study finds that corporate governance decreases capital market risk using new risk measurement at the firm level. Further analysis shows that such an effect is more pronounced in the sample of private companies, companies with a higher degree of indebtedness, and companies with a lower concentration of power. This paper’s findings help us better understand corporate governance’s role in stock risk and provide theoretical support and empirical evidence to improve the stability of the financial market in emerging markets.


Keywords


corporate governance; capital market; stock risk; firm-specific measurement; Chinese listed firms

Full Text:

PDF


References


Ang, A., Hodrick, R. J., Xing, Y., et al. (2006). The cross-section of volatility and expected returns. The Journal of Finance, 61(1), 259–299. Portico. https://doi.org/10.1111/j.1540-6261.2006.00836.x

Barko, T., Cremers, M., & Renneboog, L. (2021). Shareholder engagement on environmental, social, and governance performance. Journal of Business Ethics, 180(2), 777–812. https://doi.org/10.1007/s10551-021-04850-z

Blitz, D., Vliet, P. (2007). The volatility effect. The Journal of Portfolio Management, 34(1), 102–113. https://doi.org/10.3905/ jpm.2007.698039

Bordalo, P., Gennaioli, N., & Shleifer, A. (2012). Salience theory of choice under risk. The Quarterly Journal of Economics, 127(3), 1243–1285. https://doi.org/10.1093/qje/qjs018

Chen, W., Peng, L. (2020). Effect on accounting information quality in governance structure of automobile company listed on Shenzhen Stock Exchange. Journal of Hubei University of Automotive Technology, 34(03), 75–79.

Cornell, B., & Shapiro, A. C. (2020). Corporate stakeholders, corporate valuation and ESG. European Financial Management, 27(2), 196–207. Portico. https://doi.org/10.1111/eufm.12299

Cvijanović, D., Dasgupta, A., & Zachariadis, K. E. (2022). The Wall Street stampede: Exit as governance with interacting blockholders. Journal of Financial Economics, 144(2), 433–455. https://doi.org/10.1016/j.jfineco.2022.02.005

Ding, H., Li, Y., Wang, L., et al. (2022). The Belt and Road Initiative, political involvement, and China’s OFDI. International Studies of Economics, 17(4), 459–483. Portico. https://doi.org/10.1002/ise3.15

Fama, E. F., French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3–56. https://doi.org/10.1016/0304-405X(93)90023-5

Gupta, H., & Chaudhary, R. (2023). An analysis of volatility and risk-adjusted returns of ESG indices in developed and emerging economies. Risks, 11(10), 182. https://doi.org/10.3390/risks11100182

Gregoriou, G. N., & Gueyie, J.-P. (2003). Risk-adjusted performance of funds of hedge funds using a modified Sharpe ratio. The Journal of Wealth Management, 6(3), 77–83. https://doi.org/10.3905/jwm.2003.442378

He, S., Li, X., Lian, Y. (2011). Power concentration among family agents and firm performance: An empirical study in China. Journal of Management Sciences in China, 14(05), 86–96.

He, F., Du, H., & Yu, B. (2022). Corporate ESG performance and manager misconduct: Evidence from China. International Review of Financial Analysis, 82, 102201. https://doi.org/10.1016/j.irfa.2022.102201

Ho, V. H. (2018). Sustainable finance & China’s green credit reforms: A test case for bank monitoring of environmental risk. Cornell International Law Journal, 51(3), 609–681.

Hu, Z., & Borjigin, S. (2024). The amplifying role of geopolitical Risks, economic policy Uncertainty, and climate risks on Energy-Stock market volatility spillover across economic cycles. The North American Journal of Economics and Finance, 71, 102114. https://doi.org/10.1016/j.najef.2024.102114

Huang, W., Luo, Y., Wang, X., et al. (2022). Controlling shareholder pledging and corporate ESG behavior. Research in International Business and Finance, 61, 101655. https://doi.org/10.1016/j.ribaf.2022.101655

Huang, X., Zhang, Q., Yu, X. (2002). Risk-adjusted performance method: A new comprehensive performance evaluation approach for investment funds. Financial Theory and Practice, 4, 47–50.

Hussain, S., & Rasheed, A. (2023). Risk tolerance as mediating factor in individual financial investment decisions: a developing-country study. Studies in Economics and Econometrics, 47(2), 185–198. https://doi.org/10.1080/03796205.2023.2218053

Jin, A. (2021). Research on high ESG investment preferences of insurance funds analysis based on long-term value investment path of companies. Finance and Economy, 11, 14–24. https://doi.org/10.19622/j.cnki.cn36-1005/f.2021.11.002

Joseph, E. S. (2000). Capital market liberalization, economic growth, and instability. World Development, 200(6), 30–37. https://doi.org/10.1016/S0305-750X(00)00006-1

Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–306. https://doi.org/10.1016/0304-405X(76)90026-X

Jiang, F., Ma, Y., & Wang, X. (2020). Multiple blockholders and earnings management. Journal of Corporate Finance, 64, 101689. https://doi.org/10.1016/j.jcorpfin.2020.101689

Kontek, K. (2016). A critical note on Salience Theory of choice under risk. Economics Letters, 149, 168–171. https://doi.org/10.1016/j.econlet.2016.10.021

Li, X. (2022). Research on the impact of debt management on enterprises. Management &Technology of SME, 16, 95–97.

Philip, L. C., Steven, L. W. (1988). Corporate governance: A review of the literature. Imprint: Financial Executives Research Foundation. Morristown, N. J.

Qiu, M., Yin, H. (2019). An analysis of enterprises’ financing cost with ESG performance under the background of ecological civilization construction. Journal of Quantitative & Technological Economics, 3, 108–123. https://doi.org/10.13653/j.cnki.jqte.2019.03.007

Spence, M. (2002). Signaling in retrospect and the informational structure of markets. American Economic Review, 92(3), 434–459. https://doi.org/10.1257/00028280260136200

Treepongkaruna, S., Kyaw, K., & Jiraporn, P. (2022). Shareholder litigation rights and ESG controversies: A quasi-natural experiment. International Review of Financial Analysis, 84, 102396. https://doi.org/10.1016/j.irfa.2022.102396

Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19. Portico. https://doi.org/10.1111/j.1540-6261.1988.tb02585.x

Wang, Z., Gao, J., Liu, X., et al. (2022). Detecting prudence and temperance in risk exposure: The hybrid variance framework. Journal of Risk. https://doi.org/10.21314/jor.2022.034

Welch, K., & Yoon, A. (2022). Do high-ability managers choose ESG projects that create shareholder value? Evidence from employee opinions. Review of Accounting Studies, 28(4), 2448–2475. https://doi.org/10.1007/s11142-022-09701-4

Wu, Y. (2012). Which ownership type of enterprises in China is the most innovative? The Journal of World Economy, 35(06). https://doi.org/10.1088/2058-7058/25/06/39

Zhang, W. Y. (1999). Corporate Theory and Chinese Enterprise Reform. Beijing: Peking University Press.

Zhang, L., & Li, B. (2022). Mutual supervision or conspiracy? The incentive effect of multiple large shareholders on audit quality requirements. International Review of Financial Analysis, 83, 102274. https://doi.org/10.1016/j.irfa.2022.102274

Zhu, B., Zhou, X., Liu, X., et al. (2020). Exploring the risk spillover effects among China’s pilot carbon markets: A regular vine copula-CoES approach. Journal of Cleaner Production, 242, 118455. https://doi.org/10.1016/j.jclepro.2019.118455

Zhou, Q., Xu, X., Lu, Z. (2020). Deleveraging, who is more positive and conservative? Management World, 36(08), 127–148. https://doi.org/10.19744/j.cnki.11-1235/f.2020.0123




DOI: https://doi.org/10.24294/jipd.v8i9.7413

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Ziyu Li, Zhan Wang, Xiang Gao

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.