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How do Entrenchment and Expropriation Phenomena Affect Control Mechanisms?

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  • Alberto De Miguel
  • Julio Pindado
  • Chabela De La Torre

Abstract

This paper examines how different control mechanisms relate to one another in the Spanish corporate governance system. We propose a new empirical approach that consists of analysing control mechanisms according to the non‐linearity of the value‐ownership relation, and emphasising entrenchment and expropriation phenomena. Our evidence contributes to understanding the role played by several control mechanisms in the Spanish corporate governance system, which largely differs from the US one. Our results show that control mechanisms (especially insider ownership, debt and dividends) are used in a complementary way by Spanish firms. Additionally, this complementarity is only observed when the interests of managers and owners converge, but not when there are controlling owners whose interests need not coincide with those of minority shareholders. Therefore, entrenchment and expropriation effects do influence the relationship among control mechanisms.

Suggested Citation

  • Alberto De Miguel & Julio Pindado & Chabela De La Torre, 2005. "How do Entrenchment and Expropriation Phenomena Affect Control Mechanisms?," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(4), pages 505-516, July.
    • Handle: RePEc:bla:corgov:v:13:y:2005:i:4:p:505-516
    DOI: 10.1111/j.1467-8683.2005.00445.x
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    14. Gehan A. Mousa & Abdelmohsen M. Desoky & Zuraidah Mohd Sanusi, 2012. "The Association Between Internal Governance Mechanisms And Corporate Value: Evidence From Bahrain," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 8(Supp. 1), pages 67-91.
    15. Jennifer Martínez‐Ferrero & José Valeriano Frías‐Aceituno, 2015. "Relationship Between Sustainable Development and Financial Performance: International Empirical Research," Business Strategy and the Environment, Wiley Blackwell, vol. 24(1), pages 20-39, January.
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    18. Aloke Ghosh & Doocheol Moon, 2010. "The effect of CEO ownership on the information content of reported earnings," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 393-410, November.
    19. Ducassy, Isabelle & Guyot, Alexis, 2017. "Complex ownership structures, corporate governance and firm performance: The French context," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 291-306.
    20. Saona, Paolo & San Martín, Pablo, 2016. "Country level governance variables and ownership concentration as determinants of firm value in Latin America," International Review of Law and Economics, Elsevier, vol. 47(C), pages 84-95.
    21. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.
    22. Óscar Villarón-Peramato & Jennifer Martínez-Ferrero & Isabel-María García-Sánchez, 2018. "CSR as entrenchment strategy and capital structure: corporate governance and investor protection as complementary and substitutive factors," Review of Managerial Science, Springer, vol. 12(1), pages 27-64, January.
    23. Jennifer Martínez-Ferrero, 2014. "Consequences of financial reporting quality on corporate performance. Evidence at the international level," Estudios de Economia, University of Chile, Department of Economics, vol. 41(1 Year 20), pages 49-88, June.
    24. Silke Rünger & Rainer Niemann & Magdalena Haring, 2019. "Investor taxation, firm heterogeneity and capital structure choice," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 719-757, August.

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