Do US Investors see a difference in price volatity between China and Taiwan?

[[abstract]]Chinese and Taiwanese firms have increased their ADR listings in the US over the past years with different results varying per firm. This paper argues that volatility of an ADR is influenced by the perceived quality of corporate governance by US based investors, making poor corporate governance firms volatile. Corporate governance in Taiwan and China has been criticized by different scholars for similar arguments, such as expropriation and premeditation, even though the corporate owner structure shows differences such as family and state ownership. The fact that Taiwan and China share a wide cultural heritage makes it plausible that the perceived performance of corporate governance by US based investors can be similar, making both indexes equally volatile. By using a Chinese ADR index and a Taiwanese ADR index of ADRs listed in the US over a weekly 5 year period, this paper finds a significant difference in price volatility of which the Chinese ADR index is more volatile. It therefore argues that US based investors see a significant difference in volatility, suggesting a better corporate governance performance for Taiwanese firms.[[abstract]]Chinese and Taiwanese firms have increased their ADR listings in the US over the past years with different results varying per firm. This paper argues that volatility of an ADR is influenced by the perceived quality of corporate governance by US based investors, making poor corporate governance firms volatile. Corporate governance in Taiwan and China has been criticized by different scholars for similar arguments, such as expropriation and premeditation, even though the corporate owner structure shows differences such as family and state ownership. The fact that Taiwan and China share a wide cultural heritage makes it plausible that the perceived performance of corporate governance by US based investors can be similar, making both indexes equally volatile. By using a Chinese ADR index and a Taiwanese ADR index of ADRs listed in the US over a weekly 5 year period, this paper finds a significant difference in price volatility of which the Chinese ADR index is more volatile. It therefore argues that US based investors see a significant difference in volatility, suggesting a better corporate governance performance for Taiwanese firms