THE SUBSTITUTION EFFECT BETWEEN MANAGERIAL CONTROL MECHANISMS AND ITS EFFECT ON THE CREATION OF VALUE IN REFERENCE TO FIRM DIVERSIFICATION

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Abstract

This paper aims to investigate the relationships between two governance mechanisms such as active shareholder control and the board of directors, as well as their effect on the creation of value for the shareholder, using firm diversification strategy as the moderating variable. These relationships indicate the existence of a substitution effect between both governance mechanisms, with a more inactive board in firms with large shareholders. On the other hand, the analysis of governance mechanisms and firm diversification strategy indicate the positive effect of shareholder concentration on the creation of value for shareholders in non-diversified firms and, the positive effect of the board of administration on the creation of value for shareholders in diversified firms.

Keywords: Managerial Control, Firm Diversification, Corporate Governance

How to cite this paper: Cuervo Garcia, A., & Reyes-Recio, L. (2007). The substitution effect between managerial control mechanisms and its effect on the creation of value in reference to firm diversification [Special issue]. Corporate Ownership & Control, 5(1-4), 382-396. https://doi.org/10.22495/cocv5i1c4p6