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Minority Shareholder Monitoring and German Corporate Governance

Empirical Evidence and Value Effects

Series:

Christian Thamm

This book comprises three studies on minority shareholder monitoring in Germany. Mandatory disclosure requirements have increased transparency. An analysis of the information that is publicly available is presented, regardless of the size of the target corporation. The second essay in the form of an event study pays special attention to the German supervisory board and its appointment for a fixed term. Capital markets perceive an activist effort as being more credible under certain circumstances. The study as a whole is empirical evidence for increased minority shareholder activity in Germany. The evidence presented supports the strong shareholder rights perspective. It conflicts with the weak shareholder rights view brought forward in the international literature.

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V. Summary of Key Research Findings

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1. Activity by shareholder activists has increased during the past decade and mi- nority shareholders actively participate in corporate governance. These re- sults are in line with the most recent research on shareholder activism in Germany but conflict with the weak shareholder rights perspective and the stereotypical view of German corporate governance of the past century. 2. Shareholder activism leads to a significant, positive increase in shareholder value as measured by a short-term event study. This confirms the results of earlier studies. 3. The magnitude of abnormal returns apparently depends on the credibility of the activist effort. A New Supervisory Board Election Timing (NewBET) variable was introduced for the first time and applied in a multivariate regres- sion model. An activist approach appears to be less credible if it is not well- timed and if there is a large cash position on the target’s balance sheet. 4. Following the investment of potential shareholder activists, the attendance rate at the annual meeting increases significantly. This new finding suggests that the activists actively participate in corporate governance through moni- toring. 5. The theoretical potential for influencing German corporations is substantial, especially given the low annual meeting attendance rates observed in the sample. However, the empirical evidence based on publicly available infor- mation suggests that the overall level of actual influence is rather moderate. This partly confirms prior research findings. 6. The weak shareholder rights perspective needs to be further reviewed given regulatory and factual changes to the German corporate governance system.

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