German Corporate Research Articles

How global are German corporations An empirical investigation

The internationalisation of firms has been subject of much debate in the field of international business, with many studies examining firm-level internationalisation using a number of different measures, but few investigating changes in these measures over time. In order to contribute to closing this gap, we conduct a longitudinal study of the patterns of internationalisation of 164 German firms from the Thomson Reuters Germany equity index between 1998 and 2015, contributing to the debate surrounding regionalisation or globalisation at the firm level. To capture different aspects of multinationality, we measure both the extent and scope of internationalisation. We further categorise these measures of internationalisation over time within categories of age, size, and industry. A strong trend towards globalisation is revealed, with most firms reporting foreign sales outside of Europe and very few operating in this region only.

Corporate governance reporting: Compliance with upper limits for severance payments to members of executive boards in Germany

We examine how corporate governance reporting corresponds to actual conduct regarding severance payment caps for prematurely departing members of executive boards in Germany. Firstly, we evaluate the declarations of conformity for all companies listed in the CDAX between 2010 and 2014, which we use to determine conformity and deviation rates, and analyse the reasons for deviation, contributing to current research on comparative corporate governance, which focuses on when, why and how companies deviate from legitimate corporate governance goals (Aguilera, Judge, & Terjesen, 2018). Secondly, we assess the compensation amounts of all severance payments made and published by DAX companies to compare the respective severance ratio with the cap recommended by the German Corporate Governance Code (GCGC). We find that more than 20% of companies listed in the CDAX declared deviation in the declaration of conformity. Moreover, in 57% of actual severance cases where DAX companies had previously declared their conformity, the cap was exceeded. Yet, none of the companies that had exceeded the cap disclosed this in the following declaration of conformity. In most cases, the corporate reports deviated from reality and therefore could not serve as a suitable basis for decisions by the capital market.

How global are German corporations An empirical investigation

How global are German corporations An empirical investigation

How do firms manage their interest rate exposure?

PurposeThis paper aims to identify how non-financial firms manage their interest rate (IR) exposure. IR risk is complex, as it comprises the unequal cash flow and fair value risk. The paper is able to separate both risk types and investigate empirically how the exposure is composed and managed, and whether firms increase or decrease their exposure with derivative transactions.Design/methodology/approachThe paper examines an unexplored regulatory environment that contains publicly reported IR exposure data on the firms’ exposures before and after hedging. The data were complemented by indicative interviews with four treasury executives of major German corporations, including two DAX-30 firms, to include professional opinions to validate the results.FindingsThe paper provides new empirical insights about how non-financial firms manage their interest rate exposure. It suggests that firms use hedging instruments to swap from fixed- to floating-rate positions predominantly in the short-to medium-term, and that 63 [37] per cent of IR firm exposure are managed using risk-decreasing [risk-increasing/-constant] strategies.Practical implicationsInterviewed treasury executives suggest that the advanced disclosures benefit various stakeholders, ranging from financial analysts and shareholders to potential investors through more meaningful analyses on firms’ risk management activities. Further, the treasury executives indicate that the new data granularity would enable firms to carry out unprecedented competitive analyses and thereby benchmark and improve their own risk management.Originality/valueThe paper is the first empirical study to analyze the interest rate activities of non-financial firms based on actually reported exposure data before and after hedging, rather than using proxy variables. In addition, the new data granularity enables a separate analysis of the cash flow and fair value risk to focus on the non-financial firms’ requirements.

Do Corporations Communicate What the General Public Expects? Investigating the Gap between Corporate Self-image and Public Perceptions of Corporate Responsibility

ABSTRACTThe present article uses a multi-method approach to compare two perspectives on the responsibility of corporations: the public image and the corporate self-image. Responsibility is understood as a social construct that depends on who attributes it. This also means that people can have very different perceptions of the responsibility of corporations, all of which may not be covered by typical Corporate Social Responsibility (CSR) communication. Moreover, corporate legitimacy can be at risk if these perspectives drift too far apart. This article presents a public survey (N = 1,003) that was conducted in Germany, as well as a content analysis of responsibility judgments (N = 498) communicated by selected German corporations. The multi-method study uses the example of the clothing and banking industries. Results show differences between the self- and public images, particularly when it comes to the prioritization of responsibility fields. The people surveyed emphasize legal responsibility objects much more than the analyzed corporations. In addition, the self-image communicated by the researched clothing manufacturers deviates more from their public image than the self-image communicated by the banks. The findings suggest that corporations, especially from the clothing industry, should take stronger evaluation, communication monitoring and stakeholder dialogues into account.

Reform of Section 8c of the Corporate Tax Act – Use of Tax Loss Carry-Forwards Significantly Improved

In this note, the authors discuss recent changes in respect of limitations on corporate loss carry-forwards and their implications on German corporate tax planning.

Evolution of German corporate governance (1995-2014): an empirical analysis

PurposeThis paper aims to address the evolution of corporate governance in Germany with a particular regard to whether there can be observed a gradual convergence to a shareholder primacy corporate governance system.Design/methodology/approachTo investigate a potential shift of the German corporate governance system to an Anglo-American tiled corporate governance system, the authors have empirically assessed on a polynomial base 52 separate company and corporate governance variables for 20 years (1995-2014).FindingsThis research suggests that a gradual convergence has taken place prior to the global financial crisis. However, the results suggest that the convergence process experienced a slowdown in the aftermath of the global financial crisis, which may be linked to the stability of the German corporate governance system during the global financial crisis and the political environment during this time.Originality/valueThis paper contributes to the research by not only analysing the development of the German corporate governance system but also identifying new reasons for this development and explaining why a new convergence process may be observed in the future again.

An exploratory study on content and style as driving factors facilitating dialogic communication between corporations and publics on social media in China

Global corporations publicize on social networking sites (SNSs) to foster dialogic communication with publics as a form of building relationships. Yet the link between the content and style of the corporation communication from different cultural backgrounds and publics’ responses in the form of likes and retweets is under-researched. This empirical study explored how global corporations from China and Germany employ factors such as useful content topics and culturally-influenced communication styles to cultivate dialogic communication with publics on Sina Weibo, the largest SNS in China. Although both German and Chinese corporations similarly posted a range of content on products/services, corporate appeal and relationship building with no distinct significant differences in their communication styles, publics’ response varied noticeably in that they were more receptive to content on products/services disseminated by German corporations yet had greater responses to content on corporate appeal posted by Chinese corporations. In addition, publics were more inclined to react favorably to messages presented in an individualistic style of communication by German companies and messages in a collectivistic style by Chinese companies. The implications of how to effectively use SNS to engage in dialogue with publics are highlighted.

Corporate Compliance Systems - The Effect on Risk, Performance and Firm Value

Does corporate compliance help to reduce firm risk? We explore this question by examining the reported compliance activities of 150 publicly listed German firms over the years 2014 to 2018. We build a summary score that accounts for 24 clearly identifiable compliance elements and find that stronger reported compliance - measured via a higher score - reduces downside equity risk but increases short-term credit risk. This indicates that the tradeoff between lower extreme losses but higher day-to-day expenses from stronger compliance systems benefits equity investors at the expense of short-term debt investors. Based on a factor analysis, we furthermore observe that the equity-risk reducing effect is mainly driven by internally-oriented compliance components, whereas the credit-risk increasing effect appears to be driven by externally-oriented compliance elements. The equity-risk reducing effect of compliance is moreover shown to strengthen over time, reaching a plateau in 2017, the year in which non-financial reporting became compulsory for German corporations. Both firms and capital market participants hence seem to have become increasingly sensitive to corporate compliance reporting in the run-up to the respective legislation.

Compliance with the German Corporate Governance Code: Can the heterogeneous implementation be explained?

Starting with the Cadbury code in 1992, various national and international Corporate Governance (CG) codes have been issued all over the world. So far, empirical studies have revealed mixed results concerning the effects and outcomes of code implementation and thus supported the hypothesis of a ‘one system does not fit all’ approach in CG. Therefore, this paper empirically analyses influence factors on compliance with the German Corporate Governance Code for a large sample of 306 listed firms in 2015. We chose German companies because of the specific institutional settings in Germany, e.g., the strong influence of founder families on a firm’s management or the relevance of debt financing. It is assumed that the country-specific institutional setting limits the transferability of results of US and UK studies. Thus, we used the German setting to derive relevant influence factors on Code compliance. In addition, we applied a more sophisticated measure of Code implementation than previous studies. Overall, we find a significant positive effect of ownership dispersion and firm size on Code compliance, whereas the other influence factors, e.g., family influence or the supervisory board’s size, reveal the right direction of impact but not the required level of statistically significance. In contrast to institutional theory, we find a negative although statistically insignificant impact of the strength of foreign investors’ influence on Code compliance. Overall, our results indicate that the institutional setting is not decisive for Code compliance. Instead, we assume that the main rationale for Code compliance is not the reduction of agency conflicts but the alignment with peer group practices as indicated by the variable company size. Future research should investigate the peer effects on the level of Code compliance in detail.

Zur Empfehlung von Abfindungsobergrenzen für Vorstandsmitglieder

Zusammenfassung In diesem Beitrag wird untersucht, ob Vorstandsabfindungen von börsennotierten Unternehmen durch die Empfehlung 4.2.3 Abs. 4 Satz 1 des Deutschen Corporate Governance Kodex in der Fassung vom 7. Februar 2017 in ihrer Höhe begrenzt werden. Die dort vorgeschlagene Vereinbarung einer Begrenzung der Abfindungshöhe im Anstellungsvertrag entfaltet jedoch bei der vorzeitigen Vertragsbeendigung mittels eines Aufhebungsvertrags keine rechtliche Bindungswirkung. Die Analyse umfangreicher empirischer Daten zu Entsprechenserklärungen aller CDAX-Unternehmen in den Jahren 2010 bis 2014 zeigt, dass signifikant mehr als 20 Prozent der Unternehmen die Vereinbarung der empfohlenen Obergrenze ablehnen. Des Weiteren kann für die tatsächlichen Abfindungsrelationen vorzeitig ausgeschiedener Vorstandsmitglieder von DAX-Unternehmen in den Jahren 2010 bis 2014 gezeigt werden, dass die empfohlenen Obergrenzen trotz anderslautender Entsprechenserklärungen mehrheitlich überschritten wurden. Auf Basis der empirischen Ergebnisse wird eine Gestaltungsempfehlung für die Praxis abgeleitet, welche der Empfehlung zu einer stärkeren Wirkung verhelfen kann.

Development of German and Russian Corporate Law in the Hostile Take- over Environment

Introduction. Speculative behavior is common for modern stock markets. It leads to corporate short-termism and therefore has negative systemic implications for the states’ economies. In an attempt to mitigate this trend, the German lawmaker developed national legislation aiming, inter alia, to provide company management with additional powers it could potentially use to prevent hostile takeovers. This experience needs to be critically studied in terms of both German and Russian doctrine and legal practice.Materials and methods. This paper uses the following general and specifc scientifc methods: structure-function analysis, comparative law method, Aristotelian method, statistical method, historical method, systemic method and hermeneutic method.Results of the research. Reacting towards a number of transactions affecting the German corporate landscape, the German legislature developed the Law on Acquisition of Securities and Change of Corporate Control. This Law contains protectionist provisions potentially entitling the board of directors of a joint-stock company to undertake measures to prevent hostile takeovers either subject to consent of the supervisory board or in cases where it is authorized to do so according to the corporate charter. Nevertheless, the impact these powers have in practice is very limited, which can be mostly attributed to practical considerations of the German judiciary and legislature.Discussion and conclusions. The article contains analysis of the German and Russian legal doctrine and court practice pertaining to joint-stock companies, as well as the scope of authorities of their management, analysis of the basic advantages and disadvantages of the German regulatory approach, conclusions as to applicability of the German approach in Russia.

Corporate Governance Reporting: Compliance with Upper Limits for Severance Payments to Members of Executive Boards in Germany

This paper examines how corporate governance reporting corresponds to actual conduct regarding severance payment caps for prematurely departing members of companies’ executive boards in Germany. For this purpose, we first evaluate the declarations of conformity for all companies listed in the CDAX between 2010 and 2014, which we use to determine conformity and deviation rates, and analyse reasons for deviation. In a further full survey, we assess the compensation amounts of all severance payments made and published by DAX companies to their executive board members who were prematurely terminated, which allows us to compare the respective severance ratio with the cap recommended by the German Corporate Governance Codex (GCGC). We find that more than 20% of companies listed in the CDAX declared deviation in the declaration of conformity, and one-third of all deviations were justified by a rejection of the normative decision of the recommendation. Moreover, in 57% of actual severance cases where DAX companies had previously declared their compliance, the cap was exceeded; yet, none of the companies that had exceeded the cap in a severance case disclosed this in the following declaration of conformity. In the years under review, for the majority of severance cases in companies listed in the DAX, the GCGC’s cap did not have any factual binding effect. Finally, in most cases the corporate reports deviated from reality and therefore could not serve as a suitable basis for decisions by the capital market.

Comparison of Corporate Culture in Croatia and Germany

The topic of the paper is a law that has found its place and application in Germany, and in Croatia it comes in a different form: the Law on the Co-decision of Workers. The co-decision law directly influences German corporate culture. The paper will outline the Act itself, its division, its structure, some general facts about how, when and where it was published, when it came into force, then we will enter into the history of co-decision. Also, a link to the Croatian Labor Code and a part equivalent to German law will be shown. At the end of the paper, a survey on the quality of corporate governance in the Republic of Croatia is presented. The principles of corporate governance of the OECD are important for the successful development of corporate culture. We used scientific methods to produce the work: The historical method involves the process by which various documents can be used to find out what has happened in the past and the course and causes of a particular event, the inductive-deductive method is used in explaining established or discovering new insights and laws, proving the set points, testing hypotheses and predicting future events, and the comparative method involves the process of comparing facts and phenomena with a tendency to identify differences and similarities.

Redemptions and Asset Liquidations in Corporate Bond Funds

Mutual funds' exposure to corporate bonds has brought concerns about risks arising from liquidity transformation back to the fore. With a focus on fund asset liquidity and investors, this paper explores the flow-performance relationship and the liquidity management of funds in the presence of net redemptions. We highlight the response of fund liquidity because the vulnerability to outflows is found to depend on asset liquidity and fund ownership. We construct a unique panel of German corporate bond funds by merging data on asset liquidity with information on fund ownership. First, conditional on underperformance, illiquid funds dominated by retail investors are more exposed to outflows than illiquid funds primarily owned by institutional investors. Large investors are reluctant to withdraw most likely because they internalise the fire-sale-driven loss that a withdrawal inflicts on an illiquid fund. Within institutional-oriented funds, the flow response to bad performance is only significant if fund assets are sufficiently liquid. Second, the way that fund managers liquidate their bonds to meet redemptions is found to differ across ownership structures and depends on the degree of macroeconomic uncertainty: in times of high uncertainty, managers of institutional-oriented funds sell bonds in a liquidity pecking order style, thereby preserving short-term performance. At the same time, retail-based funds do not let portfolio liquidity deteriorate - presumably to attenuate incentives for runs.

Redemptions and Asset Liquidations in Corporate Bond Funds

Mutual funds' exposure to corporate bonds has brought concerns about risks arising from liquidity transformation back to the fore. With a focus on fund asset liquidity and investors, this paper explores the flow-performance relationship and the liquidity management of funds in the presence of net redemptions. We highlight the response of fund liquidity because the vulnerability to outflows is found to depend on asset liquidity and fund ownership. We construct a unique panel of German corporate bond funds by merging data on asset liquidity with information on fund ownership. First, conditional on underperformance, illiquid funds dominated by retail investors are more exposed to outflows than illiquid funds primarily owned by institutional investors. Large investors are reluctant to withdraw most likely because they internalise the fire-sale-driven loss that a withdrawal inflicts on an illiquid fund. Within institutional-oriented funds, the flow response to bad performance is only significant if fund assets are sufficiently liquid. Second, the way that fund managers liquidate their bonds to meet redemptions is found to differ across ownership structures and depends on the degree of macroeconomic uncertainty: in times of high uncertainty, managers of institutional-oriented funds sell bonds in a liquidity pecking order style, thereby preserving short-term performance. At the same time, retail-based funds do not let portfolio liquidity deteriorate - presumably to attenuate incentives for runs.

Americanization of German corporate law

Americanization of German corporate law

Identifying and analysing the drivers of heterogeneity among ecosystem builder accelerators

In response to convergent and dynamic market developments, established firms use corporate accelerators to open their innovation processes to start‐ups. Among different accelerator themes, the ecosystem builder theme introduced by recent research plays a crucial role in furthering our understanding of the heterogeneity of accelerators due to its broad objectives. By interviewing 20 leading experts from 16 German corporate accelerators, we first identify heterogeneity among different ecosystem builder accelerators based on the differences in the process of selection, business support, and graduation. Second, we further structure the observed heterogeneity by depicting five different ecosystem builder accelerator types instead of a single ecosystem builder theme. These ecosystem builder accelerator types show important differences and similarities in terms of strategies, design elements, and processes within each of the process steps. Our findings hold meaningful research and managerial implications by providing (1) a consistent and systematic conceptual understanding about ecosystem builder accelerators, their strategies, design elements, and processes and (2) guidance to design and position ecosystem builder accelerators with regard to a long‐term corporate strategy.

Why women build less effective networks than men: The role of structural exclusion and personal hesitation

Studies have shown that women’s professional networks are often less powerful and effective than men’s in terms of exchanged benefits, yet the motivations that underlie the networking behaviours remain less well understood. Based on an interview study of 37 high-profile female leaders working in large German corporations, we found that not only the extrinsic barrier of structural exclusion from powerful networks, but also the intrinsic barrier of women’s hesitations to instrumentalize social ties are key to answering our research question: Why do women build less effective networks than men? Our analysis points to the existence of structural exclusion resulting from work–family conflict and homophily. With regard to personal hesitation, we identified two elements that were associated with under-benefiting from networking: moral considerations in social interactions and gendered modesty. Our study makes two important contributions. First, by highlighting personal hesitation as an intrinsic barrier, it extends the understanding of women’s motivations for networking based on social exchange theory. Second, based on structural barriers and personal hesitation, it develops a grounded theory model of networking that offers a holistic understanding of reasons that, from the perspective of the focal women, contribute to gender inequality in the workplace.

Lighting up the Dark: Liquidity in the German Corporate Bond Market

We study the impact of transparency on liquidity in OTC markets. We do so by providing an analysis of liquidity in a corporate bond market without trade transparency (Germany), and comparing our findings to a market with full post-trade disclosure (the U.S.). We employ a unique regulatory dataset of transactions of German financial institutions from 2008 until 2014 to find that: First, overall trading activity is much lower in the German market than in the U.S. Second, similar to the U.S., the determinants of German corporate bond liquidity are in line with search theories of OTC markets. Third, surprisingly, frequently traded German bonds have transaction costs that are 39-61 bp lower than a matched sample of bonds in the U.S. Our results support the notion that, while market liquidity is generally higher in transparent markets, a sub-set of bonds could be more liquid in more opaque markets because of investors crowding their demand into a small number of more actively traded securities.