Marc Steffen Rapp, Michael Wolff

• We examine whether soft regulation with standardized reporting following the comply-or-explain principle dominates hard regulation of corporate governance practices. Using the example of the German Corporate Governance Code we study (i) whether firms benefit from code compliance and (ii) which firms voluntarily comply with the code. Analyzing a novel, hand-collected panel dataset, we find that while widely-held firms benefit from high compliance, high levels of compliance jeopardize firm performance in dominated firms. In a second step, we show that firm-specific agency costs increase the compliance level, indicating that managers voluntarily use code compliance as a substitute for other governance devices. Keywords: Corporate Governance, Codes of Good Governance, German Corporate Governance Code