Bannier, Christina E.
[Verfasser:in]
;
Bauer, Anastasia
[Sonstige Person, Familie und Körperschaft];
Bofinger, Yannik
[Sonstige Person, Familie und Körperschaft];
Ewelt-Knauer, Corinna
[Sonstige Person, Familie und Körperschaft]
The Corporate Compliance Function - Effects on Equity and Credit Risk
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 16, 2020 erstellt
Beschreibung:
Does corporate compliance help to reduce firm risk? We explore this question by examining the reported compliance activities of 150 publicly listed German firms over the years 2014 to 2018. We build a summary score that accounts for 24 clearly identifiable compliance elements and find that stronger reported compliance - measured via a higher score - reduces downside equity risk but increases short-term credit risk. This indicates that the tradeoff between lower extreme losses but higher day-to-day expenses from stronger compliance systems benefits equity investors at the expense of short-term debt investors. Based on a factor analysis, we furthermore observe that the equity-risk reducing effect is mainly driven by internally-oriented compliance components, whereas the credit-risk increasing effect appears to be driven by externally-oriented compliance elements. The equity-risk reducing effect of compliance is moreover shown to strengthen over time, reaching a plateau in 2017, the year in which non-financial reporting became compulsory for German corporations. Both firms and capital market participants hence seem to have become increasingly sensitive to corporate compliance reporting in the run-up to the respective legislation