Advanced Search
MyIDEAS: Login

The Effect of Corporate Governance Practices on Company Market Valuation and Payout Policy in Chile

Contents:

Author Info

  • Fernando Lefort
  • Eduardo Walker

Abstract

In this paper we ask whether corporate governance practices at the firm level within a single country affect these firms` market valuation. This question is crucial in assessing the potential benefits for firms of changing their own practices, even though they cannot affect their country`s rules. In particular, the Chilean case presents at least three interesting features that make its study especially relevant for other emerging economies. First, the Chilean corporate structure presents highly concentrated ownership, widespread use of pyramid structures to separate cash from control rights and opaque ultimate ownership identification. Second, an amendment to the Securities Market Law and the Corporations Law was recently passed with the intention of improving improve corporate governance in Chile. Finally, the Chilean capital market is relatively developed, with more than two decades of substantial participation by institutional investors. We perform regression analysis of measures of firm performance and payout policy on corporate governance indicators at the firm level and a series of control variables. We carefully check that our results are not due to omitted variable bias or to particular specification and samples through an extensive robustness check. We also control for reverse causality using two features of Chilean Corporations Law that provide an exogenous instrument for some of the corporate governance practices of Chilean firms. We find that firms that present higher coincidence between cash and control rights tend to be consistently more valued by the market. We interpret this result as an indication that potential conflicts of interest between controllers and minority shareholders are penalized by the Chilean capital market.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.iadb.org/research/pub_hits.cfm?pub_id=R-515&pub_file_name=pubR-515.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3210.

as in new window
Length:
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:idb:wpaper:3210

Contact details of provider:
Postal: 1300 New York Avenue, NW, Washington, DC 20577
Phone: 202-623-1000
Email:
Web page: http://www.iadb.org/res
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fernando Lefort & Eduardo Walker, 2000. "Corporate Governance: Challenges For Latin America," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 2(2), pages 99-111.
  2. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
  3. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
  4. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  6. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  7. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  8. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  9. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  11. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
  12. Vives,Xavier (ed.), 2000. "Corporate Governance," Cambridge Books, Cambridge University Press, number 9780521781640, October.
  13. Marco Becht & Patrick Bolton & Ailsa Röell, 2003. "Corporate governance and control," ULB Institutional Repository 2013/13330, ULB -- Universite Libre de Bruxelles.
  14. Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc.
  15. Franks, Julian R & Mayer, Colin, 2001. "Ownership and Control of German Corporations," CEPR Discussion Papers 2898, C.E.P.R. Discussion Papers.
  16. Xie, Biao & Davidson, Wallace III & DaDalt, Peter J., 2003. "Earnings management and corporate governance: the role of the board and the audit committee," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 295-316, June.
  17. Nicolás Majluf & Nureya Abarca & Darío Rodríguez & Luis Arturo Fuentes, 1998. "Governance And Ownership Structure In Chilean Economic Groups," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 1(1), pages 111-139.
  18. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  19. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  20. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  21. Anup Agrawal & Charles R. Knoeber, . "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
  22. Claessens, Stijn & Djankov^, Simeon & Fan, Joseph P.H. & Lang, Larry H.P., 2000. "The Costs of Group Affiliation: Evidence from East Asia," CEI Working Paper Series 2000-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  23. Jensen, M.C. & Murphy, K.J., 1988. "Performance Pay And Top Management Incentives," Papers 88-04, Rochester, Business - Managerial Economics Research Center.
  24. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
  25. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
  26. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  27. Erik Berglof & Ernst-Ludwig von Thadden, 1999. "The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries," William Davidson Institute Working Papers Series 263, William Davidson Institute at the University of Michigan.
  28. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 377-397, September.
  29. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
  30. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
  31. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  32. Stewart C. Myers, 2000. "Outside Equity," Journal of Finance, American Finance Association, vol. 55(3), pages 1005-1037, 06.
  33. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  34. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  35. Ann B. Gillette & Thomas H. Noe & Michael J. Rebello, 2000. "Corporate board composition, protocols, and voting behavior: experimental evidence," Working Paper 2000-10, Federal Reserve Bank of Atlanta.
  36. Bernard S. Black & Hasung Jang & Woochan Kim, 2006. "Does Corporate Governance Predict Firms' Market Values? Evidence from Korea," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(2), pages 366-413, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Alberto Chong & Florencio Lopez-de-Silanes, 2007. "Gobierno Corporativo en América Latina," Research Department Publications 4495, Inter-American Development Bank, Research Department.
  2. Alberto Chong & Florencio Lopez-de-Silanes, 2007. "Corporate Governance in Latin America," Research Department Publications 4494, Inter-American Development Bank, Research Department.
  3. Christian Espinosa & Juan Gorigoitía, 2012. "Stability of sovereign risk in the Eurozone through the Lyapunov Exponent," Working Papers 36, Facultad de Economía y Empresa, Universidad Diego Portales.
  4. Alberto Chong & Florencio López-de-Silanes, 2007. "Investor Protection and Corporate Governance : Firm-Level Evidence Across Latin America," World Bank Publications, The World Bank, number 6769, October.
  5. Fernando Lefort, 2005. "Ownership Structure And Corporate Governance In Latin America," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 8(1), pages 55-84.
  6. Juan Jose Cruces & Enrique L. Kawamura, 2005. "Insider Trading and Corporate Governance in Latin America: A Sequential Trade Model Approach," Working Papers 86, Universidad de San Andres, Departamento de Economia, revised Dec 2005.
  7. Garay, Urbi & González, Maximiliano & Guzmán, Alexander & Trujillo, María Andrea, 2013. "Internet-based corporate disclosure and market value: Evidence from Latin America," Emerging Markets Review, Elsevier, vol. 17(C), pages 150-168.
  8. Juan Cruces & Enrique Kawamura, 2005. "Insider Trading and Corporate Governance in Latin America," Research Department Publications 3206, Inter-American Development Bank, Research Department.
  9. Juan Cruces & Enrique Kawamura, 2005. "Transacciones basadas en información privilegiada y conducción empresarial en América Latina," Research Department Publications 3207, Inter-American Development Bank, Research Department.
  10. Christian Espinosa & Carlos Maquieira, 2010. "Diversificación y Desempeño en Sud América: Evidencia para Chile," Working Papers 10, Facultad de Economía y Empresa, Universidad Diego Portales.
  11. Christian Espinosa & Carlos Maquieira & Joao Paulo Vieito, 2012. "Does corporate diversication create value in south america? e chilean case," Working Papers 38, Facultad de Economía y Empresa, Universidad Diego Portales.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:idb:wpaper:3210. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luis Daniel Martinez) The email address of this maintainer does not seem to be valid anymore. Please ask Luis Daniel Martinez to update the entry or send us the correct address.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.