Corporate Governance and Expected Stock Returns: Evidence from Germany

28 Pages Posted: 20 Jun 2004

See all articles by Wolfgang Drobetz

Wolfgang Drobetz

University of Hamburg

Andreas Schillhofer

Greenhill & Co.

Heinz Zimmermann

University of Basel - Center for Economic Science (WWZ) - Department of Finance

Multiple version iconThere are 3 versions of this paper

Abstract

Recent empirical work shows evidence for higher valuation of firms in countries with a better legal environment. We investigate whether differences in the quality of firm-level corporate governance also help to explain firm performance in a cross-section of companies within a single jurisdiction. Constructing a broad corporate governance rating (CGR) for German public firms, we document a positive relationship between governance practices and firm valuation. There is also evidence that expected stock returns are negatively correlated with firm-level corporate governance, if dividend yields are used as proxies for the cost of capital. An investment strategy that bought high-CGR firms and shorted low-CGR firms earned abnormal returns of around 12% on an annual basis during the sample period.

Suggested Citation

Drobetz, Wolfgang and Schillhofer, Andreas and Zimmermann, Heinz, Corporate Governance and Expected Stock Returns: Evidence from Germany. European Financial Management, Vol. 10, No. 2, pp. 267-293, June 2004. Available at SSRN: https://ssrn.com/abstract=554954

Wolfgang Drobetz (Contact Author)

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Andreas Schillhofer

Greenhill & Co. ( email )

Main Tower (34 floor)
Neue Mainzer Strasse 52
D-60311 Frankfurt am Main
Germany

Heinz Zimmermann

University of Basel - Center for Economic Science (WWZ) - Department of Finance ( email )

Peter Merian Weg 6
Basel, 4002
Switzerland
+41 61 267 33 16 (Phone)
+41 61 267 08 98 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
29
Abstract Views
1,650
PlumX Metrics