An Empirical Study Of The Market Effect Of Corporate Governance Changes

Empirical evidences suggest that corporate governance is significantly related tofinancial frauds. Nevertheless, improving corporate governance is not without cost.After public revelations of financial statement frauds by Chinese authorities, whetherthose listed companies would indeed improve their level of corporate governance afterthey were punished, and if they did, whether those improvements would beappreciated by investors are not yet well discussed. Those questions, properlyresearched, would not only provide evidence on the confidence of investors orshareholders for companies after their punishments, but also on the effectiveness ofregulation of financial statement frauds in China. Besides, companies’ decisions oncorporate governance would also be justified, be it to improve or not. Aimed toanswer these questions, based on event study method, this article adopts statisticsanalysis, including T test, Wilcoxon’s Sign Rank Test and regression models toexamine some aspects of corporate governance and the association between thoseaspects and the buy-and-hold abnormal return or BHAR of those punished companies.Results suggest those fraud companies had reduced the ratio of the combined CEOand Director position and increased the number of annual meetings held by monitorcommittee. But no significant evidences suggest those improvements have anyassociation with fraud companies’ buy-and-hold abnormal return.