Research On Corporate Governance Premium

Today the theory and practice of corporate governance have developed to the new stage of corporate governance evaluation (Li Weian,2002). However how to scientifically evaluate the corporate governance level of listed companies, to help investors to form a comprehensive understanding of the relationship between corporate governance and firm value, to promote the securities market to reasonably reflect corporate governance premium, have become the focus of attention. However, the origin and the formation mechanism and the nature of governance premium are still a mystery. In this paper, based on the relevant research results at home and abroad, uses the standard analysis and empirical research methods by adopting a new method to measure governance premium and research its nature, formation mechanism and influencing factors to obtaine a series of theoretical and practical perspectives and conclusions.Firstly, this research establishes a theoretical framework for the formation mechanism of governance premium based on theoretically analysis of agency problems. Governance premium is redefined as asking price of bearing the additional corporate governance risk which is the part of excess value as corporate governance activities. It lies in that the market or investors do not correctly recognize that the correlation among agency problems, corporate governance and corporate performance. In that word, unexpected agency costs are passed to the stock market to gain the premium.Then, this paper empiricaly researches the mutual intertemporal effect by constructing a dynamic endogeneity model and improving corporate performance measured method. In the process of constructing a broad corporate governance index by the using of principal component analysis and developing a system of simultaneous equations and dynamic panel GMM mode to test the relationship between Corporate governance as measured by CGI with corporate performance as measured by the rate of return on common stockholders'equity by excluding the impact of earnings management. The results support the hypothesis of the mutual intertemporal effect between corporate governance with corporate performance. This is the new evidence and new explanation for the existence of governance premium. Secondly, this paper procees factors affecting analysis of governance premium in theory and empirical based on the institutional background as governance mechanism by two dimensions including the elements of governance and governance mechanisms and the environment, the results shows that there is 3.6% of governance premium per year, and the internal governance mechanism has a significant positive correlation between with governance premium, but the external governance mechanism is affected on conditional.Finally, this paper puts forward to the system arrangement and advices to improve governance premium and corporate governance based on the above findings.