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Governance Structures, Efficiency, and Firm Profitability

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  • Erik Lehmann
  • Jürgen Weigand
  • Susanne Warning
Abstract
Using a panel data set of 361 German corporations for the period 1991 to 1996 we test the hypothesis that firms with more efficient governance structures have higher profitability. To determine efficiency we compare firms with respect to ownership concentration, the identity of owners, capital structure, investment and firm growth by a multi-input/multi-output Data Envelopment Analysis (DEA). This non -parametric linear programming technique considers both multiple in- and outputs. Based on the concept of pareto efficiency, it computes an efficiency score where the associated weights of the inputs and outputs are determined endogenously. The DEA efficiency scores are then used as explanatory variables in panel data regressions of profitability. Our main finding is that the efficiency scores indeed contribute significantly to explaining profitability differences between firms, even after controlling for industry effects and unobserved systematic firm effects.

Suggested Citation

  • Erik Lehmann & Jürgen Weigand & Susanne Warning, 2004. "Governance Structures, Efficiency, and Firm Profitability," Papers on Entrepreneurship, Growth and Public Policy 2004-22, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    • Handle: RePEc:esi:egpdis:2004-22
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    3. María Victoria Uribe‐Bohorquez & Jennifer Martínez‐Ferrero & Isabel‐María García‐Sánchez, 2019. "Women on boards and efficiency in a business‐orientated environment," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(1), pages 82-96, January.
    4. Miltiades N. Georgiou, 2005. "A Practical Method to Estimate Entrepreneurship's Reward," Papers on Entrepreneurship, Growth and Public Policy 2005-38, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    5. Hülsbeck, Marcel & Lehmann, Erik E. & Weiß, Dominik & Wirsching, Katharine, 2011. "Innovationsverhalten in Familienunternehmen," UO Working Papers 02-11, University of Augsburg, Chair of Management and Organization.
    6. Audretsch, David B. & Hülsbeck, Marcel & Lehmann, Erik E., 2010. "The benefits of family ownership, control and management on financial performance of firms," UO Working Papers 05-10, University of Augsburg, Chair of Management and Organization.
    7. Lammertjan Dam & Bert Scholtens, 2013. "Ownership Concentration and CSR Policy of European Multinational Enterprises," Journal of Business Ethics, Springer, vol. 118(1), pages 117-126, November.
    8. Uribe-Bohorquez, María-Victoria & Martínez-Ferrero, Jennifer & García-Sánchez, Isabel-María, 2018. "Board independence and firm performance: The moderating effect of institutional context," Journal of Business Research, Elsevier, vol. 88(C), pages 28-43.
    9. A. N. Adi & Z. Baridwan & E. Mardiati, 2018. "Profitability, Liquidity, Leverage and Corporate Governance Impact on Financial Statement Fraud and Financial Distress as Intervening Variable," Вестник Киевского национального университета имени Тараса Шевченко. Экономика., Socionet;Киевский национальный университет имени Тараса Шевченко, vol. 5(200), pages 66-74.
    10. Tommaso Minola & Silvio Vismara & Davide Hahn, 2017. "Screening model for the support of governmental venture capital," The Journal of Technology Transfer, Springer, vol. 42(1), pages 59-77, February.
    11. Audretsch, David B. & Hülsbeck, Marcel & Lehmann, Erik E., 2013. "Families as active monitors of firm performance," Journal of Family Business Strategy, Elsevier, vol. 4(2), pages 118-130.
    12. He, Yan & Chiu, Yung-ho & Zhang, Bin, 2015. "The impact of corporate governance on state-owned and non-state-owned firms efficiency in China," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 252-277.
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    More about this item

    Keywords

    firm performance; ownership concentration; owner identity; managerial;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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