Controlling shareholder entrenchment, corporate governance and corporate performance

The objective of this study is to explore the link between controlling shareholder entrenchment and firm performance while focusing on the mitigating effects of corporate governance practices. This research is conducted in Canada covering a six-year period from 2002 to 2007 and uses panel data from 334 S%P/TSX firms. The quality of firm-level governance is measured based on the ROB index published by The Globe and Mail. The measurement of controlling shareholder entrenchment is based on voting rights and the wedge between voting and cash-flow rights. Using fixed-effect regressions, we find strong evidence that the negative impact of entrenchment on firm performance is attenuated when corporate governance practices are strong.