Does the Governed Corporation Perform Better? Does the Governed Corporation Perform Better?Governance Structures and Corporate Performancein Germany

Although there has been an intensive debate on the relative merits of different sys-tems of corporate governance, empirical evidence on the link between corporate governance andfirm performance almost exclusively refers to the market-oriented Anglo-Saxon system. This papertherefore investigates the more network- or bank-oriented German system. In panel regressions for361 German corporations over the time period 1991 to 1996, we find ownership concentration toaffect profitability significantly negatively. However, this effect depends intricately on stock marketexposure, the location of control rights, and the time horizon (short-run vs. long-run). We concludefrom 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 of traded corporations improves corporateperformance.