Article2000

Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in Germany

406 citations0/0 files storedEuropean Finance Review

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Corporate Finance and Governance Corporate Governance and Law Corporate Governance and Financial Management

Abstract

Abstract Although there has been an intensive debate on the relative merits of different systems of corporate governance, empirical evidence on the link between corporate governance and firm performance almost exclusively refers to the market-oriented Anglo-Saxon system. This paper therefore investigates the more network- or bank-oriented German system. In panel regressions for 361 German corporations over the time period 1991 to 1996, we find ownership concentration to affect profitability significantly negatively. However, this effect depends intricately on stock market exposure, the location of control rights, and the time horizon (short-run vs. long-run). We conclude from our results that (1) the presence of large shareholders does not necessarily enhance profitability,(2) ownership concentration seems to be sub-optimal for many German corporations, and, finally, (3) having financial institutions as largest shareholders of traded corporations improves corporate performance. JEL classification: G3, L1

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1978Specification Tests in Econometrics 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1997A Survey of Corporate Governance 2021Econometric Analysis of Panel Data 1980Agency Problems and the Theory of the Firm 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems

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