Ownership Structure, Sharing of Control and Legal Framework: International Evidence
20 Pages Posted: 19 May 2006
We analyze the relation between capital structure, ownership structure, and corporate value for a sample of 1,216 firms from 15 European countries. Our results stress two different conflicts of interest and show the differential role played by the mechanisms of corporate control depending on the legal and institutional environment. In common law countries, as a consequence of the relationships between managers and shareholders, capital structure and managerial ownership are the most effective mechanisms of control. In civil law countries, however, as a consequence of the conflicts between majority and minority shareholders, the ownership concentration becomes crucial and the second reference shareholder plays a critical role in reducing the extraction of private benefits by the dominant largest shareholder.
Keywords: Law and finance approach, capital structure, ownership structure, corporate governance
JEL Classification: G32, G34, G35
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