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Corporate Governance and Expected Stock Returns: Evidence from Germany

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  • Wolfgang Drobetz
  • Andreas Schillhofer
  • Heinz Zimmermann
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    Abstract

    "Recent empirical work shows evidence for higher valuation of firms in countries with a better legal environment. We investigate whether differences in the quality of firm-level corporate governance also help to explain firm performance in a cross-section of companies within a single jurisdiction. Constructing a broad corporate governance rating (CGR) for German public firms, we document a positive relationship between governance practices and firm valuation. There is also evidence that expected stock returns are negatively correlated with firm-level corporate governance, if dividend yields are used as proxies for the cost of capital. An investment strategy that bought high-CGR firms and shorted low-CGR firms earned abnormal returns of around 12% on an annual basis during the sample period." Copyright Blackwell Publishers Ltd, 2004.

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    Bibliographic Info

    Article provided by European Financial Management Association in its journal European Financial Management.

    Volume (Year): 10 (2004)
    Issue (Month): 2 ()
    Pages: 267-293

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    Handle: RePEc:bla:eufman:v:10:y:2004:i:2:p:267-293

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