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This paper investigates the determinants of regulatory compliance in corporate organizations. Exploiting a unique enforcement and reporting framework for insider trading in Italy, we present three main findings. First, board governance, such as chief executive–chairman duality and the proportion of non-executive directors, does not increase the propensity of firms to comply with regulation. Second, family firms and firms with a high degree of separation of ownership from control are most likely to comply with regulation. Third, corporate ethos is more important in predicting regulatory compliance than explicit corporate governance structures. [ABSTRACT FROM AUTHOR]

The high separation of ownership from control achieved through the concurrent use of non-voting shares and stock pyramiding could favor acquisitions made to increase private benefits of the controlling shareholders rather than all shareholders’ wealth. A standard event study methodology is carried out on three different samples of Italian acquisitions during the 1989-1996 period in order to test this hypothesis. We find evidence that a worse market reaction characterizes acquiring firms with a higher separation of ownership from control, while more value-enhancing transactions are undertaken by those smaller in size and with higher prior-performance. An entrenchment effect seems to determine a significant U-shaped relationship between the market reaction and the ultimate shareholder ownership. When the sample is restricted to acquiring firms with a dual class equity structure we find that non-voting shares report significantly negative excess returns in contrast to significantly higher positive returns for voting shares. Such evidence seems to indicate that the average acquisition has been overpaid, as suggested by the negative market reaction of the non-voting shares, while it was expected to lead to higher private benefits to the majority shareholders, as suggested by the revaluation of the voting shares. Finally, the market reaction to acquisitions made within pyramidal groups seems to indicate that the price is set so as to transfer wealth towards the companies located at the upper levels, where majority shareholders own greater fractions of the companies’ cash flows. [ABSTRACT FROM AUTHOR]

Seasoned equity issues trigger share price declines, and this is usually interpreted as evidence of signalling. We find that seasoned equity issues also typically result in much lower managerial ownership in U.S. firms. Jensen and Meckling (1976) predict a stock price decline when managerial ownership falls. We conduct several tests to distinguish agency explanations form signalling explanations, and conclude that both effects are present. [ABSTRACT FROM AUTHOR]