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Agency Issues in a Family Controlled Corporate Governance Structure The Case of Italy

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Author Info

  • Nalinaksha Bhattacharyya

    ()
    (College of Business and Public Policy, University of Alaska)

  • Julie Ann Elston

    ()
    (College of Business, Oregon State University)

  • Laura Rondi

    ()
    (Politecnico di Torino and Ceris-CNR, Italy)

Abstract

This study provides empirical evidence on the relationship between dividend payout ratios, executive compensation and agency costs in Italy. Corporate governance in Italy is distinguished by the fact that a large number of Italian firms are family controlled, which may theoretically reduce asymmetry of information and associated agency costs. Using a panel of listed manufacturing firms we find evidence that family control plays a significant role in resolving agency issues, i.e. that increases in family control of the firm lead to a higher dividend payout. Nevertheless, as we also find that managerial compensations are negatively related to dividend payout ratios, even in this family controlled environment, dividends do play their role in mitigating agency problems.

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Bibliographic Info

Paper provided by Institute for Economic Research on Firms and Growth - Moncalieri (TO) in its series CERIS Working Paper with number 201106.

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Length: 21 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:csc:cerisp:201106

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Keywords: Corporate Governance; Managerial Compensation; Dividends; Family Firms; Italy;

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References

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  1. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
  2. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
  3. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2003. "Founding family ownership and the agency cost of debt," Journal of Financial Economics, Elsevier, vol. 68(2), pages 263-285, May.
  4. Volpin, Paolo F., 2002. "Governance with poor investor protection: evidence from top executive turnover in Italy," Journal of Financial Economics, Elsevier, vol. 64(1), pages 61-90, April.
  5. Malcolm Baker & Jeffrey Wurgler, 2004. "A Catering Theory of Dividends," Journal of Finance, American Finance Association, vol. 59(3), pages 1125-1165, 06.
  6. Laura Rondi & Julie Ann Elston, 2009. "Corporate Governance And Capital Accumulation: Firm-Level Evidence From Italy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(5), pages 634-661, November.
  7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Agency Problems and Dividend Policies Around the World," Harvard Institute of Economic Research Working Papers 1839, Harvard - Institute of Economic Research.
  8. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  9. Robert Carpenter & Laura Rondi, 2006. "Going Public to Grow? Evidence from a Panel of Italian Firms," Small Business Economics, Springer, vol. 27(4), pages 387-407, December.
  10. Volpin, Paolo F., 2002. "Erratum to "Governance with poor investor protection: evidence from top executive turnover in Italy": [Journal of Financial Economics 64 (2002) 61-90]," Journal of Financial Economics, Elsevier, vol. 65(1), pages 159-160, July.
  11. Elston, Julie Ann & Goldberg, Lawrence G., 2003. "Executive compensation and agency costs in Germany," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1391-1410, July.
  12. Brunello, Giorgio & Graziano, Clara & Parigi, Bruno M., 2003. "CEO turnover in insider-dominated boards: The Italian case," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1027-1051, June.
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