Corporate governance, capital market orientation and firm performance: empirical evidence for large publicly traded German corporations

The relationship between corporate governance and firm performance, with an emphasis given to the question of whether capital market-oriented funding policies are more efficient when compared to their bank-related counterparts, has not been explicitly investigated despite its high importance for the legitimation of the regulatory policy in the EU and its member states. The paper at hand wants to fill this gap by empirically analyzing this question utilizing two panels of publicly traded German corporations. By using a ratio measuring the scope of capital market-based funding as well as further hand-collected corporate governance variables incorporating different groups of stakeholders, we investigate the determinants of firm performance expressed by accounting-based and/or market-based indicators. The results show that capital market-based funding has an ambiguous and time-varying impact on firm performance, while ‘strategic attributes’ and ‘governance attributes’ play very important roles as in particular organizational features might complement performance effects by providing safeguards in times of crisis. Taken together, our empirical findings imply that the ‘capital market-oriented firm’ is not an appropriate point of reference to capture the de facto behavior of large German corporations. Given this, regulatory bodies might be well-advised to develop alternative ‘role models’ for future corporate governance-related regulatory activities.