Impact of capital and ownership structure on corporate governance and performance: Evidence from an insider system

Abstract

The purpose of this paper is to present evidence on the impact of capital and ownership structure on corporate governance and firm performance of 80 German listed firms in HDAX index of Deutsche Börse Group in 2007. Based on agency and institutional theory, content analysis and simultaneous equation analysis are conducted. We find that debt ratio positively affects market to book ratio of equity and the extent of free-float
negatively affects market to book ratio of equity and total shareholder return. The author provides insights regarding the extent that policies concerning debt, investment, risk, growth and ownership affect key performance measures. Our findings can be helpful to managers for selecting and implementing the appropriate business policies. Besides, analysts and investors might find the results of this study useful to identify the key corporate governance mechanisms and value/performance drivers in the developing stock exchange of the German insider system.