Abstract: This paper construct a “Governance Index” which uses the incidence of 71 governance rules according to governance mechanism of China’s listed companies and investigates the impact of corporate governance on equity return. We use three-factor model of Fama-French (1993) to control the effect of market system risk, size factor and book-to-market ratio factor and to get abnormal stock return by using rolling regression. We find that internal governance index is positively significant with abnormal return, while external governance index and total governance index are not. Our results are robust to excluding effects of firm’s growth, capital market, background, year and industry. Our results provide empirical evidence for stock holder to improve governance, regulator to exact governance regulation and investor to format investing strategies.