Do shareholder coalitions modify the dominant owner's control? The impact on dividend policy

Abstract

Manuscript Type: Empirical Research Question: We examine the effect of shareholder coalitions on the corporate payout policy in Spain, a context characterized by the presence of dominant shareholders. Research Findings: Our results show that shareholder coalitions affect payout policy negatively (both for dividends and shares repurchases). We also find that the divergence between the voting rights involved in the coalition and the dominant owner's voting rights is negatively related to dividends. Theoretical/Academic Implications: Our findings suggest that shareholder coalitions can serve as an instrument for the dominant shareholders to extract private benefits. Our results also mean that the dominant owner uses the coalition as a mechanism to amplify his or her control over the firm and reduce the cost of expropriation. Practitioner/Policy Implications: Regulators should pay attention to the double role of shareholder agreements, as these coalitions could become an entrenchment mechanism for dominant shareholders. Our results highlight the importance of considering shareholder agreements when investors analyze the corporate dividend policy.