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Corporate Governance and Expected Stock Returns: Evidence from Germany


  • Wolfgang Drobetz
  • Andreas Schillhofer
  • Heinz Zimmermann


"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.

Suggested Citation

  • Wolfgang Drobetz & Andreas Schillhofer & Heinz Zimmermann, 2004. "Corporate Governance and Expected Stock Returns: Evidence from Germany," European Financial Management, European Financial Management Association, vol. 10(2), pages 267-293.
  • Handle: RePEc:bla:eufman:v:10:y:2004:i:2:p:267-293

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    References listed on IDEAS

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