How Do Entrenchment and Expropriation Phenomena Affect Control Mechanisms?

12 Pages Posted: 6 Jul 2005

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

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

de Miguel Hidaldo, Alberto and Pindado, Julio and de la Torre, Chabela, How Do Entrenchment and Expropriation Phenomena Affect Control Mechanisms?. Corporate Governance: An International Review, Vol. 13, No. 4, pp. 505-516, July 2005. Available at SSRN: https://ssrn.com/abstract=754289

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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