Corporate Compliance Systems - The Effect on Risk, Performance and Firm Value

28 Pages Posted: 29 May 2019

See all articles by Christina E. Bannier

Christina E. Bannier

Justus-Liebig-University Giessen

Anastasia Bauer

Justus Liebig University Giessen

Yannik Bofinger

Justus Liebig University Giessen

Corinna Ewelt-Knauer

Department of Finance & Accounting

Date Written: May 3, 2019

Abstract

This study examines the reported compliance activities of 112 publicly listed German firms over the years 2014 to 2017 and assesses their effect on firm risk, performance and value. We build a score that accounts for 24 different compliance-related items and find that higher reported compliance activity reduces downside (or tail) risk. Though return on equity is not affected by compliance, there is a positive effect on operating performance and on firm value measured via Tobin's Q. A principal component analysis shows that these beneficial compliance effects are mainly driven by institutionalized compliance components. Management-centric and externally-oriented compliance activities appear rather detrimental for reducing downside risk.

Keywords: Compliance, downside risk, tail risk, performance, firm value

JEL Classification: G32, G34, M14, M4

Suggested Citation

Bannier, Christina E. and Bauer, Anastasia and Bofinger, Yannik and Ewelt-Knauer, Corinna, Corporate Compliance Systems - The Effect on Risk, Performance and Firm Value (May 3, 2019). Available at SSRN: https://ssrn.com/abstract=3382084 or http://dx.doi.org/10.2139/ssrn.3382084

Christina E. Bannier

Justus-Liebig-University Giessen ( email )

Licher Str. 62
Gießen, 35394
Germany
+49 641 99 22551 (Phone)

Anastasia Bauer

Justus Liebig University Giessen ( email )

Licher Str. 64
Giessen, 35394
Germany

Yannik Bofinger (Contact Author)

Justus Liebig University Giessen ( email )

Licher Str. 64
Giessen, 35394
Germany

Corinna Ewelt-Knauer

Department of Finance & Accounting ( email )

Licher Str. 64
Giessen, 35394
Germany

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