Hard or Soft Regulation of Corporate Governance?

HHL Research Paper Series in Corporate Governance No. 6

38 Pages Posted: 20 Sep 2011 Last revised: 30 Nov 2011

See all articles by Marc Steffen Rapp

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics

Michael Wolff

University of Göttingen

Date Written: September 20, 2011

Abstract

We examine whether soft regulation with standardized reporting following the comply-or-explain principle dominates hard regulation of corporate governance practices. Using the example of the German Corporate Governance Code we study (i) whether firms benefit from code compliance and (ii) which firms voluntarily comply with the code. Analyzing a novel, hand-collected panel dataset, we find that while widely-held firms benefit from high compliance, high levels of compliance jeopardize firm performance in dominated firms. In a second step, we show that firm-specific agency costs increase the compliance level, indicating that managers voluntarily use code compliance as a substitute for other governance devices.

Keywords: corporate governance, code of best practice, firm performance, Germany

JEL Classification: G38, K22

Suggested Citation

Rapp, Marc Steffen and Schmid, Thomas and Wolff, Michael, Hard or Soft Regulation of Corporate Governance? (September 20, 2011). HHL Research Paper Series in Corporate Governance No. 6. Available at SSRN: https://ssrn.com/abstract=1930847 or http://dx.doi.org/10.2139/ssrn.1930847

Marc Steffen Rapp

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Thomas Schmid (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Michael Wolff

University of Göttingen ( email )

Platz der Göttinger Sieben 3
Göttingen, DE 37073
Germany

HOME PAGE: http://www.contolling.uni-goettingen.de

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