MECHANISMS OF GOVERNANCE AND PROTECTION FOR THE INVESTOR AS A WAY TO CONTROL THE DISCRETIONALITY OF THE MANAGEMENT: A STUDY FOR EUROPEAN COUNTRIES

Abstract

This work proposes an explanation to contrast the relationship for different countries between company governance mechanisms and the discretionality of the management, and to determine whether these mechanisms are conditioned by the institutional environment. Based on a sampling of 765 companies from seven countries of the European Union during the period from 2000 to 2003, we find that the discretionality of the management tends to decrease in proportion to concentration of ownership, there is an increase in legal protection for the investors and a decrease in levels of indebtedness and in the size of the board of directors. As a result, in an attempt to analyze the combined effect of the institutional framework and the governance of the company, we find evidence that different governance mechanisms become superfluous when there is strong protection for the investor.