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Behind Broad Corporate Governance Aggregates: A First Look at Single Provisions of the German Corporate Governance Code

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Author Info
Alexander Bassen ()
Stefan Prigge ()
Christine Zöllner ()
Abstract

This study contributes to the emerging research that analyzes the relation between performance and single components of broad corporate governance aggregates, such as governance codes and ratings. Available research so far is confined to the U.S., Japan, and emerging markets. We enlarge the geographical scope to the German Corporate Governance Code (GCGC). For a sample of 100 large listed German stock corporations, we find for the GCGC at large that of our performance measures only Tobin’s q is significantly associated with compliance; this connection is negative. Individual analysis of eleven GCGC recommendations reveals that for three of them, association with all performance measures is insignificant. Four (four) components are significantly positively negatively) connected with at least one performance measure. Most remarkably are some significantly negative associations between components and performance. Their existence might explain why the majority of empirical studies fail to find a significant connection between the GCGC at large and performance. As the group of single components found to be significant in the literature so far is quite inconsistent, further research questions emerge, such as whether there is some stability in the set of significant single components across performance measures, across countries, and through time. This study provides new impulse to both commissions setting up governance codes and to commercial providers of governance scores. In view of the significantly negative associations we found, an empirical quality inspection of the GCGC at large and of its components is recommended.

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Paper provided by Hanseatic University, Germany, Department of Economics in its series Working Papers with number 010.

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Length: 49 pages
Date of creation: Apr 2008
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Handle: RePEc:phu:wpaper:010

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  1. Brown, Lawrence D. & Caylor, Marcus L., 2006. "Corporate governance and firm valuation," Journal of Accounting and Public Policy, Elsevier, vol. 25(4), pages 409-434. [Downloadable!] (restricted)
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  3. Demsetz, Harold & Villalonga, Belen, 2001. "Ownership structure and corporate performance," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 209-233, September. [Downloadable!] (restricted)
  4. K.J. Martijn Cremers & Vinay B. Nair, 2003. "Governance Mechanisms and Equity Prices," Yale School of Management Working Papers ysm376, Yale School of Management. [Downloadable!]
  5. Black, Bernard S. & Love, Inessa & Rachinsky, Andrei, 2006. "Corporate governance indices and firms' market values: Time series evidence from Russia," Emerging Markets Review, Elsevier, vol. 7(4), pages 361-379, December. [Downloadable!] (restricted)
  6. Lehn, Kenneth & Patro, Sukesh & Zhao, Mengxin, 2007. "Governance indexes and valuation: Which causes which?," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 907-928, December. [Downloadable!] (restricted)
  7. K. J. Martijn Cremers & Vinay B. Nair, 2005. "Governance Mechanisms and Equity Prices," Journal of Finance, American Finance Association, vol. 60(6), pages 2859-2894, December. [Downloadable!] (restricted)
  8. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law & Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
  9. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June. [Downloadable!] (restricted)
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  10. Anup Agrawal & Charles R. Knoeber, . "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
  11. Andreas Hackethal & Reinhard H. Schmidt & Marcel Tyrell, 2005. "Banks and German Corporate Governance: On the Way to a Capital Market-Based System?," Working Paper Series: Finance and Accounting 146, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
  12. Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September. [Downloadable!] (restricted)
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  13. Bernard S. Black & Hasung Jang & Woochan Kim, 2006. "Does Corporate Governance Predict Firms' Market Values? Evidence from Korea," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(2), pages 366-413, October. [Downloadable!] (restricted)
  14. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February. [Downloadable!] (restricted)
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  15. Barnhart, Scott W & Rosenstein, Stuart, 1998. "Board Composition, Managerial Ownership, and Firm Performance: An Empirical Analysis," The Financial Review, Eastern Finance Association, vol. 33(4), pages 1-16, November.
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