How Do Managerial Entrenchment and Expropriation Affect Control Mechanisms?

30 Pages Posted: 28 Feb 2004

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

Date Written: December 4, 2003

Abstract

This paper proposes a new empirical approach that allows us to appropriately control for the non-linearities of ownership with respect to firm value when analysing how managerial entrenchment and expropriation affect the relations among control mechanisms. Unlike findings in previous US-based studies, which in general point to substitutability among mechanisms, our results show that control mechanisms (especially insider ownership, debt and dividends) are used in a complementary way by Spanish firms. In addition, this complementarity is only observed when the interests of managers and owners converge, but not when there are controlling owners - insiders or outsiders - whose interests need not coincide with those of minority shareholders. Therefore, managerial entrenchment and expropriation effects do influence the relationship among agency-cost control mechanisms.

Keywords: ownership concentration, insider ownership, debt, dividends, entrenchment , expropriation

JEL Classification: G32

Suggested Citation

de Miguel Hidaldo, Alberto and Pindado, Julio and de la Torre, Chabela, How Do Managerial Entrenchment and Expropriation Affect Control Mechanisms? (December 4, 2003). Available at SSRN: https://ssrn.com/abstract=475981 or http://dx.doi.org/10.2139/ssrn.475981

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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