The corporate governance affects the way a company operates and also the market valuation of its stock, hence, it affects the returns from stock as well. The literature on the effect of corporate law on return of stocks is limited yet the available form is useful. Stock returns inChinaare related to the size of the firm more than any other variable.
The Chinese market has a lot of speculations and it lacks transparency of operations due to which moving from book value concentration to market does not play a significant role in increasing returns on stock. Floating ratio has been claimed by research to affect the stock returns positively and study the expected cash flows of a company (Wang & Xu, 2004). Lack of floating ratio in the market results in a wide variety of stocks in the market since its only the public shares that can be traded and the legal or state shares are controlled by the government. Given the prevailing situation if in case the state or legal shares are floated in the market it will result in a drop in prices of stocks overall which will negatively affect the stock market ofChinaand also the companies involved.
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