Abstract

The Listing of German Firms on the New York Stock Exchange: A Corporate Governance Perspective

Fred R. Kaen und Heidemarie C. Sherman

International Private Enterprise Center, University of New Hampshire
ifo Institut für Wirtschaftsforschung, München

The German corporate governance system is a bank-oriented system that is often described as being superior to an American market oriented system with widespread public ownership of common stock and a focus on shareholder concerns. So, with all of the so-called advantages of the German system, why have some of the largest German corporations chosen to discard the German bank-oriented governance structure in favor of a market-oriented governance structure and, as part of the transformation process, listed themselves on the New York Stock Exchange (NYSE)?

Our paper examines the reasons why the German firms chose to move toward a market-based system and compares their financial performance before and after their NYSE listings. We conclude that the German firms chose to list themselves on the NYSE for primarily organizational architecture reasons. These reasons include the ability to engage in major restructuring transactions and to permit the firm to adopt operating and financial policies and structures that make the firm competitive in global markets. We also find that investors priced out the companies differently after they listed themselves on the NYSE. The stock prices of the companies in the post-listing period are more sensitive to changes in the NYSE Index and less sensitive to changes in German market stock indexes than in the pre-listing period.