OPPORTUNISTIC BEHAVIOURS AND CORPORATE GOVERNANCE STRUCTURES OF FIRMS WITH A DOMINANT SHAREHOLDER. THE EFFECTS OF OPPOSING FORCES ON VOLUNTARY DISCLOSURE PRACTICES

The purpose of this paper is to investigate whether the agency conflicts between dominant shareholder and minority shareholders affect voluntary disclosure policies of firms, in presence of an internal control mechanism like the independent directors. In particular, this study examines, in an agency setting characterized by companies with a dominant shareholder, the effects on corporate voluntary disclosure behaviour of opposing forces concerning two dimensions of governance structures: managerial ownership and board composition. The empirical results show an entrenchment effect on voluntary policies of firms. More specifically, our findings highlight the propensity to withhold internal information (especially quantitative information) on the firm by entrenched CEOs, thus undermining, ab initio, the effectiveness of monitoring activity by independent directors due to the unavailability of internal firm-specific information. Consistent with entrenchment hypothesis, this propensity to retain additional information on the firm may hide opportunistic behaviours at expenses of minority shareholders. Furthermore, mainly for companies where dominant shareholders do not hold a CEO position the propensity to disclose additional information could depend on the prevailing interest of dominant shareholder in reducing the adverse selection trough a greater disclosure on the firm (according to signaling theory), when good news occur. This study should be of particularly interest to regulators. Indeed, the findings suggest that for a stronger effectiveness of monitoring activity by independent directors it would be required a stronger legal protection of minority shareholders increasing the cost of expropriations for dominant shareholders in order to discourage their incentives of opportunistic behaviours at expense of minority shareholders.