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Inhaltsverzeichnis

Frontmatter

1. Introduction and Motivation for the Study

Abstract
In the past few years, Corporate Governance has become a popular area of discussion in Europe and, increasingly, also in Germany. Being a topic of academia for some time in Anglo-Saxon literature, nowadays, Corporate Governance has moved from a special interest into all sections of the corporate sector and political scene. In Germany, the publication of the German Corporate Governance Code (GCGC) for publicly listed companies in early 2002 has further intensified the discussion.
Andreas Schillhofer

2. Overview

Without Abstract
Andreas Schillhofer

3. Theoretical and Conceptual Framework

Abstract
The theory of principal-agent relationships as a core framework of information economics is generally considered the starting point for the discussion on Corporate Governance. It builds on the property rights theory, since it deals with the delegation of control rights from the principal to the agent. The principal-agent relationship can be defined as “[...] a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf, which involves delegating some decision-making authority to the agent.”3
Andreas Schillhofer

4. Governance Mechanisms and Firm Performance

Abstract
There are various classifications for Governance mechanisms which solve the agency conflict such as a two-part division into internal and external mechanisms83 or into exante preventive and ex-post corrective control mechanisms84. The classification into internal and external mechanisms refers to whether the respective mechanism is initiated and conducted through internal institutionalized channels and procedures or through external parties beyond the control of the firm’s management.
Andreas Schillhofer

5. Modeling Governance as a Reward for Risk

Abstract
As illustrated by Jensen and Meckling (1976), Corporate Governance mechanisms, while being costly themselves, reduce the prevailing agency problems and induced agency costs and increase firm value. While there are a number of studies which analyze the relationship between Corporate Governance and firm value, the link between Governance mechanisms and the required rate of return is largely unexplored. Lombardo and Pagano (2002) argue that this is because most microeconomic models of corporate financing generally take the opportunity cost of funds as exogenously given. In an all-equity financed firm, the cost of capital equals the cost of equity capital which is also referred to as the expected rate of return on equity. The required rate of return is the opportunity cost to the investor of investing scarce resources elsewhere in business opportunities with equivalent risk. Hence, risky projects need to earn at least the required return238 in order to be acceptable to shareholders. Assuming the risk of an additional new project equals the risk of the firm, the expected return can be estimated using the CAPM239.
Andreas Schillhofer

6. Empirical Evidence on the Relationship Between Corporate Governance and Expected Returns on Equity

Abstract
The previous chapter has shown, both formally and on the basis of existing empirical studies, how Corporate Governance may affect the expected rate of return. It also has derived hypotheses to be tested here.
Andreas Schillhofer

7. Conclusions and Outlook

Abstract
Corporate Governance in Germany has attracted a lot of attention over the last years. Prominent surveys among institutional investors have shown that they are willing to pay significant premiums for well-governed companies, and that Corporate Governance practices are at least important as financial indicators when evaluating investment decisions. While the relationship between legal Governance variables and firm performance has been analyzed in numerous cross-country studies, little is known about how a whole range of non-legal firm-specific Governance mechanisms affects the required return on equity within a single jurisdiction.
Andreas Schillhofer

Backmatter

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