Differently from prior studies that examine the role of stand-alone control systems within the relationship between owners and managers, our study investigates the correlation between two control mechanisms - voluntary disclosure and independent directors - in companies characterized by the presence of a dominant shareholder that is supposed to mitigate the classical agency problem. Based on agency theory, we hypothesize that the two mechanisms tend to coexist, since the presence of either one reduces the costs of introducing the other. Two further effects - the reputation and the domino effect - contribute to determine a positive relationship between the two mechanisms. We carried out the empirical analysis on 175 non-financial Italian listed companies, all controlled by a dominant shareholder. Voluntary disclosure is measured through three alternative disclosure indexes. Independent directors are identified not only according to a formal/legal definition, but also through stricter criteria. The empirical test is based on a multivariate analysis controlling for size, residual ownership diffusion, leverage, profitability and labour pressure. Results support our hypothesis and are robust to alternative criteria to identify dominant shareholders. Our study contributes to a better understanding of the relationship between different control mechanisms in particular agency settings.
Patelli et al. (2007) studied this question.