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The (Ir)relevance of Disclosure of Compliance with Corporate Governance Codes - Evidence from the German Stock Market

Author

Listed:
  • Eric Nowak

    (Universtity of Lugano, Institute of Finance)

  • Roland Rott

    (Goethe Universtity, Department of Finance)

  • Till G. Mahr

    (KPM Deutsche Treuhand-Gesellschaft)

Abstract

This paper studies the short- and long-run announcement effects of declaring compliance with the German Corporate Governance Code (‘the Code’). We examine a unique, hand-collected data set of 317 German listed firms from 2002-2005. First, we present evidence from an analysis of firms’ compliance behaviour regarding the Code. Second, event study results suggest that firm value is unaffected by such announcements, although there was widespread assumption by the Code’s regulator and promoters that shortterm market reactions would follow first-time disclosure of the declaration of conformity. For the long term, we find that neither higher levels of Code compliance nor improvements in governance quality have a (positive) impact on stock price performance compared to low levels of compliance and a reduction in the level of compliance. Our results add further evidence to the hypothesis that self-regulatory corporate governance reform initiatives relying on mandatory disclosure without independent monitoring and legal enforcement are ineffective and do not positively influence shareholder value.

Suggested Citation

  • Eric Nowak & Roland Rott & Till G. Mahr, 2006. "The (Ir)relevance of Disclosure of Compliance with Corporate Governance Codes - Evidence from the German Stock Market," Swiss Finance Institute Research Paper Series 06-11, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp0611
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    Citations

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    Cited by:

    1. Dirk Akkermans & Hans Van Ees & Niels Hermes & Reggy Hooghiemstra & Gerwin Van der Laan & Theo Postma & Arjen Van Witteloostuijn, 2007. "Corporate Governance in the Netherlands: an overview of the application of the Tabaksblat Code in 2004," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1106-1118, November.
    2. Kolesnik, Georgiy, 2015. "Modelling "race to the bottom" effect on the self-regulated markets," MPRA Paper 64138, University Library of Munich, Germany.
    3. Bendikov, Mikhail & Kolesnik, Georgiy, 2013. "Конкуренция Саморегулируемых Организаций И Эффективность Рынков [Self-regulatory organizations competition and the market efficiency]," MPRA Paper 47812, University Library of Munich, Germany.
    4. Andres, Christian & Theissen, Erik, 2008. "Setting a fox to keep the geese -- Does the comply-or-explain principle work?," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 289-301, June.
    5. Amon Chizema, 2008. "Institutions and Voluntary Compliance: The Disclosure of Individual Executive Pay in Germany," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(4), pages 359-374, July.
    6. Darren Henry, 2008. "Corporate Governance Structure and the Valuation of Australian Firms: Is There Value in Ticking the Boxes?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7‐8), pages 912-942, September.
    7. Windsor, Duane, 2009. "Tightening corporate governance," Journal of International Management, Elsevier, vol. 15(3), pages 306-316, September.

    More about this item

    Keywords

    Option pricing; Corporate Governance; Self-Regulation; Governance Index; Event Studies; Long-Run Performance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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