Financial Valuation of the German Model: The Negative Relationship Between Ownership Concentration and Stock Market Returns, 1997-2001

Abstract

Believed to be a robust alternative to Anglo-American market capitalism, the virtues of the German model are increasingly disputed as doubts are raised about its long-term prospects. At the core of the German model is a system of corporate governance that is characterized by concentrated ownership and cross-holdings of stocks among related firms and their financial service providers. When combined with workers' representation on corporate supervisory boards, concentrated ownership is thought to encourage a longer-term competitive and investment strategy. Using a unique data set on German corporate voting rights and insights gleaned from intensive interviews with German and international financial institutions, we analyze daily stock market prices from 1997 to 2001, testing for the value attributed to concentrated ownership by financial markets. We show that financial markets discount ownership concentration in ways that are consistent with Anglo-American conceptions of shareholder value, rather than with the logic of the German model. There is a significant negative relationship between ownership concentration and the average daily rate of return (as measured by closing stock market prices). This is an important finding for firms in the DAX100 and is the most pronounced for firms in the DAX30. Implications of these findings for the continued significance of distinctive regional systems of accumulation are considered in the final sections.

Learning from America? Knowledge Flows and Industrial Practices of German Firms in North America

“…As we noted at the outset, much of the previous research has been limited to the corporate finance and governance practices of Germany's largest corporate entities (see Clark and Wójcik 2005). As we noted at the outset, much of the previous research has been limited to the corporate finance and governance practices of Germany's largest corporate entities (see Clark and Wójcik 2005).…”

“…Our goal in designing the sample was to include firms of all sizes. As we noted at the outset, much of the previous research has been limited to the corporate finance and governance practices of Germany's largest corporate entities (see Clark and Wójcik 2005). Although we included some of these corporate giants in our sample, we balanced them with strong representation from Germany's legendary Mittelstand, the small-and medium-sized familyowned and privately held firms that dominate the mechanical and electrical engineering sectors.…”

“…For large, global actors, regardless of national origin or ownership, these phenomena produce strong incentives to conform to the Anglo-American practices and conventions that dominate corporate governance, finance, and other practices of publicly traded, large firms on the world stage (see Clark and Wójcik 2005). National firms with aspirations to tap global capital markets experience strong pressure to adopt "generally accepted" norms of accounting, financial reporting, and corporate governance.…”

“…They are also expected to generate rates of return on shareholders' capital that approach or exceed global standards. For large, global actors, regardless of national origin or ownership, these phenomena produce strong incentives to conform to the Anglo-American practices and conventions that dominate corporate governance, finance, and other practices of publicly traded, large firms on the world stage (see Clark and Wójcik 2005).…”

Performance of closely held firms in Russia: evidence from firm-level data∗

“…Most studies appear to focus on net profit, stock market returns, and cash flow. In effect, 'performance' is measured by the income generated by the firm and available for distribution among the claimants to the firm as expressed by various accounting ratios (Clark and Wójcik 2005). As far as transition economies are concerned, experts question the reliability of traditional performance measures (Hoskisson et al 2000).…”