Effect of ownership structure on underinvestment and overinvestment: empirical evidence from Spain

Abstract

[EN] This paper investigates how ownership affects the investment-cash flow sensitivityby taking into account the non-linearities of ownership with respect to firmvalue, and using a free cash flow index and a criterion for financial constraintsto disentangle underinvestment and overinvestment. Interesting results are pro-vided by estimating using the Generalized Method of Moments to eliminate theendogeneity problem. The alignment of interests between owners and managersand the monitoring by concentrated ownership both alleviate the sensitivity ofinvestment to cash flow both in underinvestor and overinvestor firms. However,in the presence of controlling owners, underinvestment and overinvestment areexacerbated.