Ownership, managerial control and the governance of companies listed on the Brussels stock exchange

This paper examines how corporate control is exerted in companies listed on the Brussels Stock Exchange. There are several alternative corporate governance mechanisms which may play a role in disciplining poorly performing management: blockholders (holding companies, industrial companies, families and institutions), the market for partial control, debt policy, and board composition. Even if there is redundancy of substitute forms of discipline, some mechanisms may dominate. We ®nd that top managerial turnover is strongly related to poor performance measured by stock returns, accounting earnings in relation to industry peers and dividend cuts and omissions. Tobit models reveal that there is little relation between ownership and managerial replacement, although industrial companies resort to disciplinary actions when performance is poor. When industrial companies increase their share stake or acquire a new stake in a poorly performing company, there is evidence of an increase in executive board turnover, which suggests a partial market for control. There is little relation between changes in ownership concentration held by institutions and holding companies, and disciplining. Still, high leverage and decreasing solvency and liquidity variables are also followed by increased disciplining, as are a high proportion of non-executive directors Journal of Banking & Finance 24 (2000) 1959±1995 www.elsevier.com/locate/econbase * Present address: Department of Finance and CentER, Tilburg University, Warandelaan 2, 5000 Tilburg, Netherlands. Tel.: +31-13-466-8210; fax: +31-13-466-2875. E-mail address: [email protected] (L. Renneboog). 0378-4266/00/$ see front matter Ó 2000 Elsevier Science B.V. All rights reserved. PII: S 0 3 7 8 4 2 6 6 ( 9 9 ) 0 0 1 2 8 4 and the separation of the functions of CEO and chairman. Ó 2000 Elsevier Science B.V. All rights reserved. JEL classi®cation: G3; G32; G38