German Corporate Governance Code and Unaccepted Recommendations

From 2002 the German Corporate Governance Commission introduced a Corporate. Governance Code to companies listed on the German stock exchange. The Code provides blanket recommendations. Each company in noncompliance with one or more of the recommendations must explain in writing. The present study presents the first empirical analysis of compliance. Regarding the 2003 amended Code, this study first identifies the Most Commonly Unaccepted Recommendations (MCURs). Next it uses the MCUR's to sort companies as either compliant or noncompliant. Thirdly the study measures each companies' level in EPS (Earnings per Share) and in average stock price. Finally it compares the overall results of the compliant versus the noncompliant companies of the 2003 recommendations. The results show no correlation between compliance and change in EPS. The results do show a strongly positive correlation between compliance and rise in stock price.