Behind Broad Corporate Governance Aggregates: A First Look at Single Provisions of the German Corporate Governance Code

This study contributes to the emerging research that analyzes the relation between performance and single components of broad corporate governance aggregates, such as governance codes and ratings. Available research so far is confined to the U.S., Japan, and emerging markets. We enlarge the geographical scope to the German Corporate Governance Code (GCGC). For a sample of 100 large listed German stock corporations, we find for the GCGC at large that of our performance measures only Tobin’s q is significantly associated with compliance; this connection is negative. Individual analysis of eleven GCGC recommendations reveals that for three of them, association with all performance measures is insignificant. Four (four) components are significantly positively negatively) connected with at least one performance measure. Most remarkably are some significantly negative associations between components and performance. Their existence might explain why the majority of empirical studies fail to find a significant connection between the GCGC at large and performance. As the group of single components found to be significant in the literature so far is quite inconsistent, further research questions emerge, such as whether there is some stability in the set of significant single components across performance measures, across countries, and through time. This study provides new impulse to both commissions setting up governance codes and to commercial providers of governance scores. In view of the significantly negative associations we found, an empirical quality inspection of the GCGC at large and of its components is recommended.