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How do Entrenchment and Expropriation Phenomena Affect Control Mechanisms?

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  • Alberto De Miguel
  • Julio Pindado
  • Chabela De La Torre

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

  • Alberto De Miguel & Julio Pindado & Chabela De La Torre, 2005. "How do Entrenchment and Expropriation Phenomena Affect Control Mechanisms?," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(4), pages 505-516, July.
    • Handle: RePEc:bla:corgov:v:13:y:2005:i:4:p:505-516
    DOI: 10.1111/j.1467-8683.2005.00445.x
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