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

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Author Info
Erik Lehmann () (Center of Finance and Econometrics)
Juergen Weigand () (CPB The Netherlands Institute of Economic Policy Analysis)
Abstract

The paper investigates the impact of corporate governance on the performance of 361 German corporations over the time period 1991 to 1996. We find ownership concentration to affect profitability significantly negatively. Representation of owners on the board of executive directors does not make a difference. The profitability-ownership concentration relation depends on both stock market exposure and the location of control rights. The negative effect of ownership concentration can be traced back to family- or foreign-owned non-quoted firms as well as quoted firms with different large shareholders. A positive impact of ownership concentration on profitability, supportive of managerial discretion and agency theories, shows up for quoted firms which have financial institutions as large shareholders. Our results imply that (1) the presence of large shareholders does not necessarily enhance profitability, and (2) the high degree of ownership concentration seems to be a sub-optimal choice for many of the tightly held German corporations.

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Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 00-05.

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Length: 31 Pages
Date of creation: Jan 2000
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Handle: RePEc:knz:cofedp:0005

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. María Gutiérrez & Josep A. Tribo, 2004. "Private benefits extraction in closely-held corporations: The case for multiple large shareholders," Business Economics Working Papers wb044315, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  2. Axel Börsch-Supan & Jens Köke & Joachim Winter, 2004. "Pension reform, savings behavior and capital market performance," MEA discussion paper series 04053, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  3. Ettore Andreani & Kathrin Dummann & Doris Neuberger, 2009. "Composition of Supervisory Boards in Germany: Inside or Outside Control of Banks?," Thuenen-Series of Applied Economic Theory 103, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  4. Manjon-Antolin, M.C., 2004. "Econometric modelling in blockholder systems of corporate governance," Discussion Paper 74, Tilburg University, Center for Economic Research. [Downloadable!]
  5. Ross Levine & Luc Laeven, 2007. "Complex Ownership Structures and Corporate Valuations," IMF Working Papers 07/140, International Monetary Fund. [Downloadable!]
    Other versions:
  6. Dhillon, Amrita & Rossetto, Silvia, 2009. "Corporate Control and Multiple Large Shareholders," The Warwick Economics Research Paper Series (TWERPS) 891, University of Warwick, Department of Economics. [Downloadable!]
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