Corporate Governance of Latin American Firms: Contestability to the Control and Firm Performance

Abstract

See abstract in English.

Prior literature argues that, given the existence of an institutional framework characterized by high ownership concentration and lower investor protection, the power distribution between several large shareholders may increase the financial performance by increasing secondary shareholders incentives to engage in monitoring activities or to contest the control of the largest shareholder. Using a sample of non-financial listed firms for six Latin American countries, we analyze the relationship between the existence of multiple large non-related shareholders and firm performance. We observe a positive relationship between power distribution and financial performance. Specifically, when we split the sample and family and non-family firms, we find evidence in line with the monitoring incentives of secondary shareholders. Findings are even more significant for family-owned firms, especially at higher levels of ownership concentration. Altogether, our results confirm the specific problems of corporate governance in Latin American firms, for which we reinforce and suggest some policy implications for the existence of equilibrated ownership structures. We check robustness by running different estimation methods and observe that our main results hold.