Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in Germany |
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Authors: | Erik Lehmann and Jürgen Weigand |
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Institution: | (1) Department of Economics and Statistics, University of Konstanz, P.O. box D-144, D-78457 Konstanz, Germany;(2) Otto Beisheim Graduate School of Management WHU Koblenz, Burgplatz 2, D-56179 Vallendar, Germany;(3) CPB Netherlands Bureau for Economic Policy Analysis, 2508 GM Den Haag, Postbus 80510, The Netherlands |
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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 to1996, 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 oftraded corporations improves corporate performance. |
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Keywords: | firm performance ownership concentration governance structures managerial discretion |
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