Ownership Structure and Firm Value: New Evidence from the Spanish Corporate Governance System

38 Pages Posted: 8 Jun 2003

See all articles by Alberto de Miguel

Alberto de Miguel

University of Salamanca - Administration and Business Economics

Julio Pindado

University of Salamanca - Administration and Business Economics

Chabela de la Torre

University of Salamanca - Administration and Business Economics

Abstract

In this paper we investigate the relationship between ownership structure and value in Spanish firms. We therefore provide new evidence on this relation, since the Spanish corporate governance system differs from the ones considered in previous theoretical and empirical research. According to financial literature on corporate ownership structure, we have focused on the concentration of ownership - in order to test the monitoring and expropriation hypotheses - and on insider ownership - looking for evidence in favour of the convergence-of-interest and entrenchment hypotheses. We have estimated our two empirical models using the same methodology so as to avoid several problems emphasized by previous literature. Specifically, we use the Generalized Method of Moments which allows us to eliminate unobservable heterogeneity - using panel data methodology - and to control for potential endogeneity - using instruments. Unlike previous studies, our empirical evidence supports a quadratic relationship between value and ownership concentration. This result confirms not only the monitoring but also the expropriation effect for the very highest concentration values in Spanish firms. The fact that Spanish majority shareholders manage to expropriate the wealth of minority shareholders, while in other countries - such as the UK, the US, Germany and Japan - this does not occur, confirms the idea that differences in corporate governance systems lead to different value-ownership relations. Additionally, the insider ownership model provides results that support a cubic specification for the value-insider ownership relation in Spanish firms. We interpret this evidence as consistent with both the convergence-of-interests and the entrenchment effects. Moreover, we find that Spanish insiders get entrenched at higher ownership levels than their UK and US counterparts. This result is also consistent with the argument that different value-ownership relations might be explained by differences in corporate governance systems across countries.

Keywords: Corporate governance, insider ownership, ownership concentration, firm value

JEL Classification: G32

Suggested Citation

de Miguel Hidaldo, Alberto and Pindado, Julio and de la Torre, Chabela, Ownership Structure and Firm Value: New Evidence from the Spanish Corporate Governance System. EFMA 2003 Helsinki Meetings. Available at SSRN: https://ssrn.com/abstract=393464 or http://dx.doi.org/10.2139/ssrn.393464

Alberto De Miguel Hidaldo

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

Julio Pindado (Contact Author)

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

Chabela De la Torre

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain

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