Disentangling the Impact of Control-Enhancing Mechanisms on Firm Performance: An Empirical Investigation across Five European Countries

Governance scholars and investors traditionally advocate against the use of control enhancing mechanisms, i.e. mechanisms aimed at separating voting and cash flow rights. These mechanisms may, in fact, determine a
deviation from the proportionality principle and may encourage large and controlling shareholders to expropriate minority shareholders. The aim of this article is to contribute to the current debate investigating the implications
of these control-enhancing mechanisms on firm performance. To reach this purpose, we collected ownership data on the (100) largest listed companies per capitalization in five European countries (i.e. France, Germany, Italy, Spain, and the UK). Then we tested the consequences of control-enhancing mechanisms for firm performance using 2SLS regression models. Our results show that (i) mechanisms that lock-in control do have a direct and negative impact on firm performance, and (ii) the negative impact on firm performance of mechanisms aimed at enhancing control by leveraging voting power is mediated by the divergence in voting and cash flow rights.