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

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.