Abstract
The discussion of companies’ compliance with corporate governance standards and codes has widely neglected the situation of small and medium-sized enterprises (SMEs). Accordingly, the authors examine a sample of 151 SMEs listed on the Frankfurt Stock Exchange in 2006 (before the financial crisis) and 2012 (after the financial crisis) and, thus, required to declare whether they comply with the recommendations of the German Corporate Governance Code or not. While code compliance seems to be quite homogenous comparing different branches, the authors found that company size has a positive impact on code compliance. With regard to a remarkably high number of recommendations a lot of companies do not comply to, company size might be a major problem, why the existing GCGC does not fit very well to the situation of SMEs. This is why, most remarkably, code compliance does not exert any significant influence on either market reaction or on operating performance of SMEs. Keywords: corporate governance, SMEs, Germany, firm performance. JEL Classification: G3, G34, M10, L25
Highlights
In recent years, corporate governance has become one of the key issues of both management research and practitioners (Keasey et al, 1999; Lazzari et al, 2001)
Since German law (§161 German Corporation Act) requires each listed company to declare whether it complies with the recommendations of the German Corporate Governance Code (GCGC) or not, we decided to focus on those small and medium-sized enterprises (SMEs) that are incorporated as joint-stock companies and are listed on the Frankfurt Stock Exchange
The general level of code compliance is relatively low among the SMEs
Summary
Corporate governance has become one of the key issues of both management research and practitioners (Keasey et al, 1999; Lazzari et al, 2001). Most of the time, this discussion concentrates on large corporations, neglecting the numerous small and medium-sized enterprises (SMEs) (Cravens and Wallace, 2001). This is true for the situation in Germany, where it is widely debated whether and to what extent the topic of corporate governance is in keeping with the particular legal and economic status of SMEs (e.g., Bernhardt, 2003; Claussen and Bröcker, 2002; Steger, 2006; Strenger, 2003). Markus Stiglbauer, Ph.D., Associate Professor, Campus M21 Private Business School, Munich and Nuremberg, Germany. 1 In Greek mythology, Procrustes was a bandit who physically attacked people, stretching them, or cutting off their legs so as to make them fit the length of an iron bed
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