Directors Compensation and Shareholders Expropriation: Evidence from Italy

Abstract

This paper investigates the relation between directors' compensation and the dominant shareholder's propensity to expropriate the minorities. Given the documented director's capability to conveniently influence their pay-package, and the corporate exposure to expropriation by the controlling shareholder, we find that directors remuneration contract, both in his components and in his value, discount the company expropriation's probability. We conclude that control enhancing devices increase agency costs, since they are exploited by directors, as well as the dominant shareholder, in order to maximize the resources extractible by the company.

Keywords: Corporate governance, Directors, Expropriation, Compensation

JEL Classification: G32, G34, K22, J33