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

39 Pages Posted: 19 May 2001

See all articles by Erik E. Lehmann

Erik E. Lehmann

University of Augsburg - Faculty of Business and Economics

Jürgen Weigand

Wissenschaftliche Hochschule fuer Unternehmensfuehrung (WHU) Koblenz

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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.

Keywords: firm performance, ownership concentration, governance structures, managerial discretion

JEL Classification: G3, L1

Suggested Citation

Lehmann, Erik E. and Weigand, Jürgen, Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in Germany. Available at SSRN: https://ssrn.com/abstract=275834 or http://dx.doi.org/10.2139/ssrn.275834

Erik E. Lehmann (Contact Author)

University of Augsburg - Faculty of Business and Economics ( email )

Universitätsstr. 16
Augsburg, 86135
Germany

Jürgen Weigand

Wissenschaftliche Hochschule fuer Unternehmensfuehrung (WHU) Koblenz ( email )

Burgplatz 2
Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/mikro

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