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Corporate governance is an important issue on the research agenda of financial economists. Using a new and unique data set of German corporations this book examines three topics that are crucial to a better understanding of corporate governance: (a) the frequency, causes, and consequences of control transfers, (b) the determinants of acquisition and failure, and (c) the role of corporate governance and market discipline for productivity growth. This book points out methodological drawbacks of previous empirical studies and provides suggestions on how to avoid these problems in research practice.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract
Corporate governance is the complex system of control mechanisms by which “the suppliers of finance to corporations assure themselves of getting a return on their investment” (Shleifer and Vishny, 1997: 737). The classical problem of corporate governance is the separation of ownership and control, or more exactly, the agency costs which result from a divergence of interest between the owners and the managers of the firm (Berle and Means, 1932; Jensen and Meckling, 1976).
Jens Köke

2. Literature Review and Methodological Concerns

Abstract
This chapter is a revised and adapted version of Börsch-Supan and Köke (2002). It critically reviews previous empirical work on corporate governance to point out important methodological problems constraining these studies. It also suggests solutions to these problems, paying particular attention to the institutional setting in Germany. The ultimate aim is to indicate which data should be collected for corporate governance analyses and which methodological drawbacks can be avoided when using those data. The construction of the German Corporations Database discussed in Chapter 3 as well as the empirical analyses presented in Chapters 4–6 are direct applications of the lessons suggested in this chapter.
Jens Köke

3. The German Corporations Database (GCD)

Abstract
The key lesson from the literature review in Chapter 2 is that a solid database is essential. Only with data on hand that fulfill specific requirements, most methodological drawbacks plaguing previous empirical studies on corporate governance can be addressed.
Jens Köke

4. Frequency, Causes, and Consequences of Control Transfers

Abstract
This chapter is a revised and adapted version of Köke (2000). It examines the market for large share blocks in Germany. Shleifer and Vishny (1997) argue that such a market for corporate control is an important element of corporate governance. Particularly active markets have been described for the US (e.g., Jensen and Ruback, 1983; Jarrell et al., 1988) and the UK (Franks and Mayer, 1990). To a large extent these markets are based on hostile takeovers. Focusing solely on hostile takeovers, there is no market for corporate control in the bank-based economies of continental Europe (OECD, 1998), in particular not in Germany (Franks and Mayer, 1998). For Germany, this lack is typically attributed to bank voting power, complex ownership structures, and political resistance. This chapter shows that control transfers in Germany occur more frequently than often assumed, and that there are some indications characterizing these control transfers as disciplinary.
Jens Köke

5. Determinants of Acquisition and Failure

Abstract
This chapter is an extended and adapted version of Köke (2001b). It examines the determinants of acquisition and failure of German corporations. Both issues have recently attracted the increased attention of researchers and policy makers alike. In Germany, but also in other continental European countries the number of insolvencies continued to rise or stagnated at high levels. At the same time, in the past decade we have seen an upsurge in merger and acquisitions activity, both within and across the borders. In Germany and in other continental European countries, hostile takeovers are rare (Franks and Mayer, 1998). But as shown in Chapter 4, similarly to the US block trades occur more frequently than tender offers. Especially German policy makers often argue that acquisitions occur to the disadvantage of shareholders and other stakeholders. A recent example is the takeover of Mannesmann by the British telecom company Vodafone that provoked intense discussions on the merits of acquisitions.
Jens Köke

6. Corporate Governance, Market Discipline, And Productivity Growth

Abstract
This chapter is a revised and adapted version of Köke (2001a). It examines the role of corporate governance and market discipline for total factor productivity growth. Understanding the determinants of productivity growth is important. According to Börsch-Supan (1999), Germany and France have lagged the US in terms of total factor productivity by around 20% throughout the entire period of 1970–1995. Researchers and policy makers alike recently recognize productivity as a major determinant of future generations’ welfare. The corresponding interest in the sources of productivity is likely to increase as countries move away from pay-as-you-go financing into partially or fully funded pension systems: While total factor productivity is equally important for the (internal) rate of return under both types of pension systems, greater use of capital markets under a funded system could improve corporate governance and ultimately spur productivity growth, as argued by Borsch-Supan and Winter (1999). Hence, good corporate governance could help reduce the transition burden associated with a change in the pension scheme.
Jens Köke

7. Concluding Remarks

Abstract
This study makes two contributions. First, we assemble a unique database — the German Corporations Database (GCD) — that provides a solid basis for corporate governance analysis in Germany (Chapter 3). Compared with previously available data sets, GCD is less likely to suffer from selectivity bias because it includes listed and non-listed corporations, private as well as public. In addition, GCD allows to avoid common methodological drawbacks of previous studies such as endogeneity or missing variables because it is a large unbalanced panel and because it contains a much richer set of information on all relevant corporate governance mechanisms.
Jens Köke

Backmatter

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