Setting a Fox to Keep the Geese: Does the comply-or-explain principle work?
The German Corporate Governance Code works according to the comply-or-explain principle. One of its recommendations was to publish the remuneration of the members of the executive board on an individual basis. We examine the characteristics of the firms that comply with the code requirement. Our results indicate that firms that pay higher average remunerations to their management board members are less likely to comply, whereas firms with higher Tobin's Q are more likely to comply. We also document a non-monotonic relation between ownership concentration and the probability of compliance that is consistent with standard corporate governance arguments. Due to the fact that the number of firms complying with the disclosure requirement was low, a new law was passed that mandates disclosure unless the shareholders' meeting (with a 75% majority) decides otherwise. We find that this 'loophole' in the new legislation is exploited by smaller firms, firms with comparatively high levels of executive remuneration, and firms with concentrated ownership. We discuss the implications of our results for the effectiveness of the comply-or-explain regulation.
|Date of creation:||2008|
|Contact details of provider:|| Postal: 0221 / 470 5607|
Phone: 0221 / 470 5607
Fax: 0221 / 470 5179
Web page: http://cfr-cologne.de/english/version06/html/home.php
More information through EDIRC
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.:
- Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004.
"Why are foreign firms listed in the U.S. worth more?,"
Journal of Financial Economics,
Elsevier, vol. 71(2), pages 205-238, February.
- Craig Doidge & G. Andrew Karolyi & Rene M. Stulz, 2001. "Why are Foreign Firms Listed in the U.S. Worth More?," NBER Working Papers 8538, National Bureau of Economic Research, Inc.
- Masahiro Okuno-Fujiwara & Andrew Postlewaite & Kotaro Suzumura, 1990. "Strategic Information Revelation," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 25-47.
- Dechow, Patricia M. & Sloan, Richard G., 1991. "Executive incentives and the horizon problem : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 51-89, March.
- Anil K. Makhija & James M. Patton, 2004. "The Impact of Firm Ownership Structure on Voluntary Disclosure: Empirical Evidence from Czech Annual Reports," The Journal of Business, University of Chicago Press, vol. 77(3), pages 457-492, July.
- Murphy, Kevin J. & Zimmerman, Jerold L., 1993. "Financial performance surrounding CEO turnover," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 273-315, April.
- Robert Gibbons & Kevin J. Murphy, 1992. "Does Executive Compensation Affect Investment?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 99-109.
- Kevin J. Murphy & Robert Gibbons, 1992. "Does Executive Compensation Affect Investment?," NBER Working Papers 4135, National Bureau of Economic Research, Inc.
- G. Andrew Karolyi, 2006. "The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom," Review of Finance, European Finance Association, vol. 10(1), pages 99-152.
- Karolyi, G. Andrew, 2004. "The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom," Working Paper Series 2004-14, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
- Shleifer, Andrei & Vishny, Robert W., 1986. "Large Shareholders and Corporate Control," Scholarly Articles 3606237, Harvard University Department of Economics.
- Marc Goergen & Miguel Manjon & Luc Renneboog, 2008. "Is the German system of corporate governance converging towards the Anglo-American model?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(1), pages 37-71, March.
- Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
- Eric Nowak & Roland Rott & Till G. Mahr, 2004. "The (Ir)relevance of Disclosure of Compliance with Corporate Governance Codes - Evidence from the German Stock Market," Swiss Finance Institute Research Paper Series 06-11, Swiss Finance Institute, revised Apr 2006.
- 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.
- René M. Stulz, 1999. "Golbalization, Corporate Finance, And The Cost Of Capital," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(3), pages 8-25.
- Gregory S. Miller, 2002. "Earnings Performance and Discretionary Disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 173-204, 03.
- Diamond, Douglas W & Verrecchia, Robert E, 1991. " Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
- Ryan, Harley Jr. & Wiggins, Roy III, 2001. "The influence of firm- and manager-specific characteristics on the structure of executive compensation," Journal of Corporate Finance, Elsevier, vol. 7(2), pages 101-123, June.
- Brennan, Michael J. & Subrahmanyam, Avanidhar, 1995. "Investment analysis and price formation in securities markets," Journal of Financial Economics, Elsevier, vol. 38(3), pages 361-381, July.
- Axel v. Werder & Till Talaulicar & Georg L. Kolat, 2005. "Compliance with the German Corporate Governance Code: an empirical analysis of the compliance statements by German listed companies," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 178-187, 03.
- Grossman, S J & Hart, O D, 1980. " Disclosure Laws and Takeover Bids," Journal of Finance, American Finance Association, vol. 35(2), pages 323-334, May.
- Sanford Grossman & Oliver Hart, "undated". "Disclosure Laws and Takeover Bids," Rodney L. White Center for Financial Research Working Papers 23-79, Wharton School Rodney L. White Center for Financial Research.
- repec:bla:joares:v:31:y:1993:i::p:183-223 is not listed on IDEAS Full references (including those not matched with items on IDEAS)