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

Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in... Although there has been an intensive debate on the relative merits of different systems of corporate governance, empirical evidence on the link between corporate governance and firm performance almost exclusively refers to the market-oriented Anglo-Saxon system. This paper therefore investigates the more network- or bank-oriented German system. In panel regressions for 361 German corporations over the time period 1991 to 1996, we find ownership concentration to affect profitability significantly negatively. However, this effect depends intricately on stock market exposure, the location of control rights, and the time horizon (short-run vs. long-run). We conclude from our results that (1) the presence of large shareholders does not necessarily enhance profitability,(2) ownership concentration seems to be sub-optimal for many German corporations, and, finally, (3) having financial institutions as largest shareholders of traded corporations improves corporate performance. JEL classification: G3, L1 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Finance Oxford University Press

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

Review of Finance , Volume 4 (2) – Jan 1, 2000

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Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
ISSN
1572-3097
eISSN
1573-692X
DOI
10.1023/A:1009896709767
Publisher site
See Article on Publisher Site

Abstract

Although there has been an intensive debate on the relative merits of different systems of corporate governance, empirical evidence on the link between corporate governance and firm performance almost exclusively refers to the market-oriented Anglo-Saxon system. This paper therefore investigates the more network- or bank-oriented German system. In panel regressions for 361 German corporations over the time period 1991 to 1996, we find ownership concentration to affect profitability significantly negatively. However, this effect depends intricately on stock market exposure, the location of control rights, and the time horizon (short-run vs. long-run). We conclude from our results that (1) the presence of large shareholders does not necessarily enhance profitability,(2) ownership concentration seems to be sub-optimal for many German corporations, and, finally, (3) having financial institutions as largest shareholders of traded corporations improves corporate performance. JEL classification: G3, L1

Journal

Review of FinanceOxford University Press

Published: Jan 1, 2000

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