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Pension Reform And Corporate Governance: Impact In Chile

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  • AUGUSTO IGLESIAS-PALAU

    (PrimAmérica Consultores, Chile)

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    Abstract

    The influence of Chilean pension fund management organizations (AFPs) on corporate governance has been shaped by regulations and by three characteristics of the local market, namely: lack of liquidity; high ownership concentration; and high visibility of AFP investment decisions. AFPs began to invest in stocks in 1985, and have behaved since as active shareholders. Pension fund participation in the stock market has had positive effects on corporate governance: 1) The number of independent board members has increased. 2) Monitoring costs have decreased as a result of improved public information quality. 3) Companies where pension funds have invested are under close public scrutiny. 4) Shareholder meetings are becoming more relevant. 5) Bondholder protection has also improved. Capital market growth has also had positive consequences on corporate governance. Economies of scale have made possible a new research industry, which has helped to reduce information costs. Also, market financing has become more attractive for firms. Capital market regulation has also improved and risk-rating procedures and conflict of interests regulations have been introduced in the legislation. All these changes have widened the investor base. However, other regulations and some ambiguities in the legislation impede pension funds to better monitor corporations, other than participating in shareholder meetings.

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    File URL: http://eacc10.puc.cl/files/ABT/Contenidos/Vol-3-N1/5%20Iglesias.pdf
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    Bibliographic Info

    Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

    Volume (Year): 3 (2000)
    Issue (Month): 1 ()
    Pages: 109- 141

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    Handle: RePEc:pch:abante:v:3:y:2000:i:1:p:109-141

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    Web page: http://eacc10.puc.cl/RePEc/pch/
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    Related research

    Keywords: Pension Reform; Corporate Governance; Chile; Emerging Markets; Regulations;

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    References

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    1. Robert Holzmann, 1997. "Pension Reform, Financial Market Development, and Economic Growth: Preliminary Evidence from Chile," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 149-178, June.
    2. Walker, Eduardo & Lefort, Fernando, 2002. "Pension reform and capital markets : are there any (hard) links?," Social Protection Discussion Papers 24082, The World Bank.
    3. Vittas, Dimitri & Michelitsch, Roland, 1995. "Pension funds in Central Europe and Russia : their prospects and potential role in corporate governance," Policy Research Working Paper Series 1459, The World Bank.
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    Cited by:
    1. Fernando Lefort & Eduardo Walker, 2000. "The Effects Of Economic And Political Shocks On Corporate Governance Systems In Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 2(2), pages 183-206.

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