This empirical master’s thesis examines firms' deviation behavior from the German Corporate Governance Code (GCGC) between 2005 and 2015. It analyzes whether companies listed in the DAX comply with the GCGC to a greater extent than those in other indices and whether larger companies, measured by market capitalization, deviate less from the GCGC than smaller companies. Furthermore, the study explores whether ownership concentration is positively correlated with the number of deviations and whether family firms deviate more than non-family firms. It also investigates whether companies led by family members show greater deviations than those led by non-family members and whether company performance is negatively correlated with deviations from the GCGC. Additionally, the thesis examines whether companies of certain industry affiliations deviate more than others, whether stock corporations (“AG”) exhibit a higher compliance rate than companies of other legal forms, and whether corporate complexity is negatively correlated with deviations from the GCGC.
The empirical analysis also presents specific standards of the GCGC, which showed the highest deviations by the listed companies. After each standard, a possible explanation for the companies' deviations is presented by the author.
Before the empirical analysis is conducted, the development of corporate governance in Germany is presented in general.
Table of Contents
1 Introduction
1.1 Relevance of corporate governance for the economic system
1.2 Objective and elaboration of the hypotheses to be tested
2 Literature review
2.1 Development of corporate governance in Germany
2.2 State of research
2.2.1 Acceptance of the GCGC during the years 2005-2015
2.2.2 Reasons for deviations from the GCGC
3 Empirical analysis of the statements of compliance
3.1 Dataset
3.2 Results and evaluation
3.2.1 Deviation behaviour in general
3.2.2 Index membership
3.2.3 Company size
3.2.4 Ownership structure
3.2.4.1 Ownership concentration
3.2.4.2 Family firms
3.2.4.3 Founder holds the leading position of a board
3.2.5 Company performance
3.2.6 Industry affiliation
3.2.7 Legal form
3.2.8 Company complexity
4 Conclusion and critical appraisal
Objectives and Research Themes
This master thesis investigates the compliance and deviation behavior of German listed companies regarding the standards of the German Corporate Governance Code (GCGC) over the period 2005 to 2015, aiming to determine which specific company characteristics influence these compliance choices.
- Analysis of the relationship between index membership and deviation frequency.
- Evaluation of company size and market capitalization as drivers for GCGC adherence.
- Impact of ownership structure, including family firm status and the founder's role, on corporate governance compliance.
- Assessment of the correlation between corporate financial performance (TobinsQ, ROA, leverage) and compliance rates.
- Examination of industry-specific and legal form-based differences in governance behavior.
- Investigation into company complexity, such as board size and committee structure, regarding governance standards.
Excerpt from the Book
3.1 Dataset
To answer the above mentioned hypotheses and to find out about the correlation between several company characteristics and deviation frequencies from the GCGC, data were hand-collected over the past two years. The data collection procedure can be described as follows: Information on the deviation from the GCGC of German companies that are listed in the Prime Standard at the Frankfurt Stock Exchange between 2005 and 2015 was collected. There are permanent changes at the stock exchange in terms of companies going public and others getting delisted. To determine the companies listed in the several years, the index composition of the respective previous year was used for the whole year under review.
The information was gathered from Hoppenstedt, Thomson Reuters Eikon, Capital IQ, the Investor Relations section on the companies’ websites containing the compliance statements and the annual reports of these companies. Hoppenstedt is a database consisting of information about more than 850.000 firms in Germany, Austria and Switzerland, the ownership structure of 800.000 corporations worldwide and about four million annual financial statements. Hoppenstedt provided the information concerning the free float and the ordinary shares, the preference shares and the shareholdings of the management, the employees and the entity’s own shares. For each company the shareholders with their stakes (in %) was gathered. Only companies organised under the legal forms of SE, AG and KGaA were taken into account. Firms with the legal forms of plc and SA were excluded because they are listed companies but on the stock market in Great Britain and Switzerland.
Summary of Chapters
1 Introduction: Discusses the historical relevance and necessity of corporate governance systems, citing examples like Enron and Dieselgate to highlight agency problems.
2 Literature review: Analyzes the evolution of German corporate governance, the transition towards Anglo-American standards, and previous research findings on GCGC compliance.
3 Empirical analysis of the statements of compliance: Details the dataset construction and evaluates the deviation behavior of companies based on variables like index category, ownership, performance, and complexity.
4 Conclusion and critical appraisal: Summarizes the findings regarding the developed hypotheses and provides a critical outlook on the future development and structure of the GCGC.
Keywords
Corporate Governance, GCGC, Compliance, Deviation, DAX, Ownership Structure, Family Firms, Market Capitalization, TobinsQ, Agency Problem, Transparency, Financial Performance, Index Membership, Supervisory Board, Comply-or-explain
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis focuses on an empirical investigation into why and to what extent German listed companies deviate from the recommendations of the German Corporate Governance Code (GCGC) between 2005 and 2015.
What are the central themes discussed in the work?
The central themes are corporate governance standards, compliance behavior, the role of index membership, ownership structures, and the impact of various firm characteristics on governance transparency.
What is the core research objective?
The primary goal is to analyze which company characteristics—such as size, industry, or performance metrics—correlate with high or low levels of compliance with the GCGC.
Which scientific methodology is applied?
The study uses a quantitative empirical approach, collecting compliance data from annual reports and databases (e.g., Hoppenstedt) and evaluating these through descriptive statistics and hypothesis testing.
What topics are covered in the main section?
The main section covers the dataset methodology and the empirical evaluation of nine specific hypotheses regarding index membership, firm size, family attributes, financial performance, and company complexity.
Which keywords characterize the work?
Key terms include GCGC, compliance, deviation, ownership structure, index membership, and agency problems.
Are family-owned companies generally more compliant?
The research indicates that family firms tend to deviate from GCGC standards more frequently than non-family firms, often due to a strong influence of the founder or family owners on company strategy.
Does company size correlate with compliance?
Yes, the study observes a negative correlation between company size and deviation rates, meaning larger companies listed in major indices like the DAX generally show higher compliance.
How does the "comply-or-explain" principle influence company behavior?
It acts as a flexible framework, allowing companies to deviate from recommendations when they disclose their specific reasons, which firms often utilize if they perceive certain standards as unsuitable for their business model.
What is the role of the Supervisory Board according to the findings?
The study highlights that standards regulating the Supervisory Board’s composition and its members' remuneration are highly sensitive topics, often attracting the highest number of deviations.
- Quote paper
- Anna Rottke (Author), 2017, Empirical analysis of the statements of compliance and acceptance of the German Corporate Governance Codices of German listed companies from 2005 to 2015, Munich, GRIN Verlag, https://www.grin.com/document/1565306
