Executive Compensation and Agency Costs in a Family Controlled Corporate Governance Structure -The Case of Italy

This paper examines whether dividends are an important mechanism for mitigating agency costs in Italy. Corporate governance in Italy is distinguished by the fact that large numbers of firms are family controlled. Examining a panel of listed Italian firms from 2000-2007 we find that dividends play a significant role in mitigating agency costs, as they do in many countries. Empirical findings further suggest that increases in family control lead to a higher dividend payout; while higher levels of executive compensation leads to a lower dividend payout. Overall, findings suggest that executive compensation is effective at mitigating agency costs in the environment where family control over corporate governance is prevalent.