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.

1. 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
2. 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
3. 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
4. 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
5. 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.
6. 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
7. 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
8. 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
9. 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
10. 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
11. 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
12. 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.
13. 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
14. 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.
15. 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
16. 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
17. 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.
18. 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
19. 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
20. 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
21. 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
22. 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
23. 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
24. Li, X. (2022). Research on the impact of debt management on enterprises. Management &Technology of SME, 16, 95–97.
25. Philip, L. C., Steven, L. W. (1988). Corporate governance: A review of the literature. Imprint: Financial Executives Research Foundation. Morristown, N. J.
26. 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
27. 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
28. 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
29. 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
30. 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
31. 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
32. 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
33. Zhang, W. Y. (1999). Corporate Theory and Chinese Enterprise Reform. Beijing: Peking University Press.
34. 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
35. 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
36. 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