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Working paper

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

Lopez Iturriaga F. J., Sanz I. P.
We examine the effect of shareholder coalitions on the corporate payout policy in Spain, a context characterized by the presence of dominant shareholders. Our results show that shareholder coalitions affect payout policy negatively (both for dividends and shares repurchases). This finding suggests that shareholder coalitions serve as an instrument for the dominant shareholder’s to extract private benefits. We also find that the relation between the voting rights involved in the coalition and the dominant owner´s voting rights is negatively related to dividends. This result means 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. The results provide new evidence on the effects of corporate control mechanisms on shareholders wealth; this evidence is complementary to the US or UK centered research, where dominant ownership is not as prevalent and, thus, it is more difficult to capture these effects.