Does the well governed firm perform better? Regulatory implications for SMEs in the financial sector

Abstract

Although bad corporate governance has been identified as one reason for the failure of financial companies in the current financial crisis, the discussion almost exclusively refers to big players so far. This paper therefore investigates SMEs in the financial sector. Against theoretical assumptions and previous findings for big companies, in regressions for 21 SMEs in the German financial sector we find compliance with the German Corporate Governance Code (as a proxy for “good” corporate governance) not to affect performance significantly positively. This opens the discussion whether the existing rules of “good” corporate governance in Germany do also fit to SMEs and which actions have to be taken into consideration by politics, financial authorities and regulators to solve the situation.