Review of Managerial Science

, Volume 12, Issue 1, pp 65–112 | Cite as

Determinants of firm value in Latin America: an analysis of firm attributes and institutional factors

Original Paper


This study analyses the impact of firm-level variables as well as country-level institutional factors on firm value in the Latin American region. The theoretical framework used to develop the research hypotheses has followed a corporate governance approach. The sample includes public firms from Argentina, Brazil, Chile, Colombia, Mexico, and Peru for the 1997–2013 period. The main findings indicate that ownership concentration, capital structure, and dividend policy are significant drivers of the market value of the firm. The results from determinants at the country-level show that legal enforcement and regulatory systems positively impact the market value of the firm, whilst the findings show unexpected results concerning the development of the financial system.


Corporate governance Firm value Emerging markets LATAM 

JEL Classification




We thank the valuable comments of Burcin Yurtoglu, Stijn Claessens, Yishay Yafeh, Francisco Urzúa, Mauricio Jara, Alesia Slocum and the seminal participants in the 5th International Conference on Corporate Governance in Emerging Markets at Leipzig, Germany (2015).


  1. Adjaoud F, Ben-Amar W (2010) Corporate governance and dividend policy: Shareholders’ protection or expropriation? J Bus Financ Account 37:648–667. doi: 10.1111/j.1468-5957.2010.02192.x CrossRefGoogle Scholar
  2. Altman EI (2005) An emerging market credit scoring system for corporate bonds. Emerg Mark Rev 6:311–323. doi: 10.1016/j.ememar.2005.09.007 CrossRefGoogle Scholar
  3. Ang JS, Cole RA, Lin JW (2000) Agency costs and ownership structure. J Financ 55:81–106CrossRefGoogle Scholar
  4. Arellano M (2002) Sargan’s instrumental variables estimation and the generalized method of moments. J Bus Econ Stat 20:450–459CrossRefGoogle Scholar
  5. Arellano M (2003) Panel data econometrics. Oxford University Press, OxfordCrossRefGoogle Scholar
  6. Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equation. Rev Econ Stud 58:277–297CrossRefGoogle Scholar
  7. Arellano M, Bover O (1995) Another look at the instrumental variable estimation of error-components models. J Econom 68:29–51. doi: 10.1016/0304-4076(94)01642-D CrossRefGoogle Scholar
  8. Balasubramanian N, Black B, Khanna V (2010) The relation between firm-level corporate governance and market value: a case study of India. Emerg Mark Rev 11:319–340. doi: 10.1016/j.ememar.2010.05.001 CrossRefGoogle Scholar
  9. Barclay MJ, Smith CW (1996) On financial architecture. Leverage, maturity, and priority. J Appl Corp Financ 8:4–17CrossRefGoogle Scholar
  10. Barclay MJ, Smith CW (1999) The capital structure puzzle: another look at the evidence. J Appl Corp Financ 12:8–20. doi: 10.1111/j.1745-6622.1999.tb00655.x CrossRefGoogle Scholar
  11. Barclay MJ, Max LM, Smith CW (2003) The joint determination of leverage and maturity. J Corp Financ 9:149–167CrossRefGoogle Scholar
  12. Bebchuk LA, Hamdani A (2009) The elusive quest for global governance standards. Univ Pa Law Rev 157:1263–1317. doi: 10.2307/40380267 Google Scholar
  13. Beck T, Demirgüç-Kunt A, Levine R (2000) A new database on the structure and development of the financial sector. World Bank Econ Rev 14:597–605CrossRefGoogle Scholar
  14. Berger PG, Ofek E (1995) Diversification’s effect on firm value. J Financ Econ 37:39–65. doi: 10.1016/0304-405X(94)00798-6 CrossRefGoogle Scholar
  15. Black B, de Carvalho AG, Gorga É (2012) What matters and for which firms for corporate governance in emerging markets? Evidence from Brazil (and other BRIK countries). J Corp Financ 18:934–952. doi: 10.1016/j.jcorpfin.2011.10.001 CrossRefGoogle Scholar
  16. Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econom 87:115–143CrossRefGoogle Scholar
  17. Booth L, Aivazian V, Demirgüç-Kunt A, Maksimovic V (2001) Capital structures in developing countries The. J Financ 56:87–130CrossRefGoogle Scholar
  18. Bottazzi L, Da Rin M, Hellmann T (2009) What is the role of legal systems in financial intermediation? Theory and evidence. J Financ Intermed 18:559–598CrossRefGoogle Scholar
  19. Bozec Y, Bozec R (2007) Ownership concentration and corporate governance practices: substitution or expropriation effects? Can J Adm Sci/Revue Canadienne des Sciences de l’Administration 24:182–195. doi: 10.1002/cjas.23 CrossRefGoogle Scholar
  20. Brav A, Graham J, Harvey C, Michaely R (2005) Payout policy in the 21st century. J Financ Econ 77:483–527CrossRefGoogle Scholar
  21. Brown P, Beekes W, Verhoeven P (2011) Corporate governance, accounting and finance: a review. Account Financ 51:96–172. doi: 10.1111/j.1467-629X.2010.00385.x CrossRefGoogle Scholar
  22. Buchuk D, Larraín B, Muñoz F, Urzúa F (2014) The internal capital markets of business groups: evidence from intra-group loans. J Financ Econ 112:190–212. doi: 10.1016/j.jfineco.2014.01.003 CrossRefGoogle Scholar
  23. Campa JM, Kedia S (2002) Explaining the diversification discount. J Financ 57:1731–1762CrossRefGoogle Scholar
  24. Chari A, Ouimet PP, Tesar LL (2010) The value of control in emerging markets. Rev Financ Stud 23:1741–1770. doi: 10.1093/rfs/hhp090 CrossRefGoogle Scholar
  25. Chen L, Zhao X (2006) On the relation between the market-to-book ratio, growth opportunity, and leverage ratio. Financ Res Lett 3:253–266. doi: 10.1016/ CrossRefGoogle Scholar
  26. Choi I (2001) Unit root tests for panel data. J Int Money Financ 20:249–272. doi: 10.1016/S0261-5606(00)00048-6 CrossRefGoogle Scholar
  27. Claessens S, Yurtoglu BB (2013) Corporate governance in emerging markets: a survey. Emerg Mark Rev 15:1–33. doi: 10.1016/j.ememar.2012.03.002 CrossRefGoogle Scholar
  28. Claessens S, Djankov S, Fan JPH, Lang LHP (2002) Disentangling the incentive and entrenchment effects of large shareholdings. J Finance 57:2741–2771CrossRefGoogle Scholar
  29. Crisóstomo VL, López F, Vallelado E (2014) Nonfinancial companies as large shareholders alleviate financial constraints of Brazilian firm. Emerg Mark Rev 18:62–77. doi: 10.1016/j.ememar.2014.01.005 CrossRefGoogle Scholar
  30. De Jong A, Kabir R, Nguyen TT (2008) Capital structure around the world: the roles of firm- and country-specific determinants. J Bank Financ 32:1954–1969. doi: 10.1016/j.jbankfin.2007.12.034 CrossRefGoogle Scholar
  31. de Miguel A, Pindado J, de la Torre C (2004) Ownership structure and firm value: new evidence from Spain. Strateg Manag J 25:1199–1207. doi: 10.1002/smj.430 CrossRefGoogle Scholar
  32. de Miguel A, Pindado J, de la Torre C (2005) How do entrenchment and expropriation phenomena affect control mechanisms? Corp Gov Int Rev 13:505–516. doi: 10.1111/j.1467-8683.2005.00445.x CrossRefGoogle Scholar
  33. Demirgüç-Kunt A, Levine R (2004) Financial structure and economic growth: a cross-country comparison of banks, markets, and development, 1st edn. Massachusetts Institute of Technology, CambridgeGoogle Scholar
  34. Demirguç-Kunt A, Maksimovic V (1998) Law, finance, and firm growth The. J Financ 53:2107–2137CrossRefGoogle Scholar
  35. Dempsey SJ, Laber G (1992) Effects of agency and transaction costs on dividend payout ratios: further evidence of the agency-transaction cost hypothesis. J Financ Res 15:317–321CrossRefGoogle Scholar
  36. Denis DJ, Denis DK, Sarin A (1997) Agency problems equity ownership, and corporate diversification. J Financ 52:135–160CrossRefGoogle Scholar
  37. Durnev ART, Kim EH (2005) To steal or not to steal: firm attributes, legal environment, and valuation. J Financ 60:1461–1493. doi: 10.1111/j.1540-6261.2005.00767.x CrossRefGoogle Scholar
  38. Dyck A, Zingales L (2004) Private benefits of control: an international comparison. J Financ 59:537–600CrossRefGoogle Scholar
  39. Easterbrook FH (1984) Two agency-cost explanations of dividends. Am Econ Rev 74:650–659Google Scholar
  40. Espinosa C (2009) Estructura de propiedad y desempeño de la firma: El caso chileno Academia. Rev Latinoam Adm 43:41–62Google Scholar
  41. Espinosa C, Maquieira C (2010) Desempeño y concentración de la propiedad en empresas chilenas emisoras de Amerian Depositary Receipts (ADR). Cuadernos de Administración de Bogotá (Colombia) 23:95–116Google Scholar
  42. Espinosa C, Maquieira C, Vieito JP, González M (2012) Capital structures in developing countries: the Latin American case. Investig Econ LXXI:35–54Google Scholar
  43. Ferris S, Sen N, Unlu E (2009) An international analysis of dividend payment behavior. J Bus Financ Account 36:496–522CrossRefGoogle Scholar
  44. Garay U, González M (2008) Corporate governance and firm value: the case of Venezuela. Corp Gov Int Rev 16:194–209. doi: 10.1111/j.1467-8683.2008.00680.x CrossRefGoogle Scholar
  45. Gibson MS (2003) Is corporate governance ineffective in emerging markets? J Financ Quant Anal 38:231–250CrossRefGoogle Scholar
  46. Gippel J, Smith T, Zhu Y (2015) Endogeneity in accounting and finance research: natural experiments as a state-of-the-art solution. Abacus 51:143–168. doi: 10.1111/abac.12048 CrossRefGoogle Scholar
  47. Graham JR, Harvey CR (2001) The theory and practice of corporate finance: evidence from the field. J Financ Econ 60:187–243CrossRefGoogle Scholar
  48. Gupta PP, Kennedy DB, Weaver SC (2009) Corporate governance and firm value: evidence from Canadian capital markets. Corp Ownersh Control 6:293–307Google Scholar
  49. Harris M, Raviv A (1991) The theory of capital structure. J Financ 46:297–355CrossRefGoogle Scholar
  50. Haugen RA, Baker NL (1996) Commonality in the determinants of expected stock returns. J Financ Econ 41:401–439. doi: 10.1016/0304-405X(95)00868-F CrossRefGoogle Scholar
  51. Hovakimian A, Li G (2011) In search of conclusive evidence: how to test for adjustment to target capital structure. J Corp Financ 17:33–44CrossRefGoogle Scholar
  52. Hunsaker J (1999) The role of debt and bankruptcy statutes in facilitating tacit collusion. Manag Decis Econ 20:9–24. doi: 10.1002/(sici)1099-1468(199902)20:1<9::aid-mde916>;2-# CrossRefGoogle Scholar
  53. Jara M, López F, López-de-Foronda Ó (2008) The contest to the control in European family firms: how other shareholders affect firm value. Corp Gov Int Rev 16:146–159. doi: 10.1111/j.1467-8683.2008.00677.x CrossRefGoogle Scholar
  54. Jensen MC (1986) Agency cost of free cash flow, corporate finance, and takeovers. Am Econ Rev 72:323–329Google Scholar
  55. Jensen MC, Meckling W (1976) Theory of the firm: managerial behaviour, agency cost and ownership structure. J Financ Econ 3:305–360CrossRefGoogle Scholar
  56. Kim J-O, Mueller CW (1978) Introduction to factor analysis: what it is and how to do it. Sage University, Beverly HillsCrossRefGoogle Scholar
  57. Kaufmann D, Kraay A, Mastruzzi M (2011) The worldwide governance indicators: methodology and analytical Issues. Hague J Rule Law 3:220–246. doi: 10.1017/s1876404511200046 CrossRefGoogle Scholar
  58. Klapper LF, Love I (2004) Corporate governance, investor protection, and performance in emerging markets. J Corp Financ 10:703–728CrossRefGoogle Scholar
  59. Klock MS, Mansi SA, Maxwell WF (2005) Does corporate governance matter to bondholders? J Finan Quant Anal 40:693–719. doi: 10.1017/S0022109000001940 CrossRefGoogle Scholar
  60. La Porta R, Lopez-De-Silanes F, Shleifer A, Vishny R (2000) Agency problems and dividend policies around the world. J Financ 55:1–33CrossRefGoogle Scholar
  61. La Porta R, Lopez-De-Silanes F, Shleifer A (2006) What works in securities laws? J Financ 61:1–32. doi: 10.1111/j.1540-6261.2006.00828.x CrossRefGoogle Scholar
  62. Lang LHP, Ofek E, Stulz R (1996) Leverage, investment, and firm growth. J Financ Econ 40:3–29CrossRefGoogle Scholar
  63. Lin J-C, Tai VW (2013) Corporate governance and analyst behavior: evidence from an emerging market. Asia-Pac J Financ Stud 42:228–261. doi: 10.1111/ajfs.12013 CrossRefGoogle Scholar
  64. Lind JT, Mehlum H (2010) With or without U? The appropriate test for a U-shaped relationship. Oxf Bull Econ Stat 72:109–118. doi: 10.1111/j.1468-0084.2009.00569.x CrossRefGoogle Scholar
  65. Lins KV (2003) Equity ownership and firm value in emerging markets. J Financ Quant Anal 38:159–184. doi: 10.2307/4126768 CrossRefGoogle Scholar
  66. López F, Crisóstomo VL (2010) Do leverage, dividend payout, and ownership concentration influence firms’ value creation? An analysis of Brazilian firms. Emerg Mark Financ Trade 46:80–94. doi: 10.2753/ree1540-496x460306 Google Scholar
  67. López F, Saona P (2007) Endeudamiento, dividendos y estructura de propiedad como determinantes de los problemas de agencia en la gran empresa española. Cuadernos de Economía y Dirección de Empresa 31:119–146CrossRefGoogle Scholar
  68. Love I (2011) Corporate governance and performance around the world: What we know and what we don’t. World Bank Res Obs 26:42–70. doi: 10.1093/wbro/lkp030 CrossRefGoogle Scholar
  69. Maquieira C, Danús M (1998) Costos de Agencia y Costos de Transacción como Determinantes de la Tasa de Pago de Dividendos en Chile. Estudios de Administración 5:49–81Google Scholar
  70. Maquieira C, Moncayo I (2004) Costos de Agencia y Costos de Transacción como Determinantes de la Tasa de Pago de Dividendos en Chile: Una Extensión. Estudios de Administración 11:1–26Google Scholar
  71. Martin JD, Sayrak A (2003) Corporate diversification and shareholder value: a survey of recent literature. J Corp Financ 9:37–57. doi: 10.1016/S0929-1199(01)00053-0 CrossRefGoogle Scholar
  72. McConnell JJ, Servaes H (1990) Additional evidence on equity ownership and corporate value. J Financ Econ 27:595–612. doi: 10.1016/0304-405X(90)90069-C CrossRefGoogle Scholar
  73. Mitton T (2004) Corporate governance and dividend policy in emerging markets. Emerg Mark Rev 5:409–426. doi: 10.1016/j.ememar.2004.05.003 CrossRefGoogle Scholar
  74. Morck R, Shleifer A, Vishny RW (1988) Management ownership and market valuation: an empirical analysis. J Financ Econ 20:293–315. doi: 10.1016/0304-405x(88)90048-7 CrossRefGoogle Scholar
  75. Morey M, Gottesman A, Baker E, Godridge B (2009) Does better corporate governance result in higher valuations in emerging markets? Another examination using a new data set. J Bank Financ 33:254–262. doi: 10.1016/j.jbankfin.2008.07.017 CrossRefGoogle Scholar
  76. Myers SC (1984) Capital structure puzzle. J Financ 39:575–593CrossRefGoogle Scholar
  77. Naceur SB, Omran M (2011) The effects of bank regulations, competition, and financial reforms on banks’ performance. Emerg Mark Rev 12:1–20. doi: 10.1016/j.ememar.2010.08.002 CrossRefGoogle Scholar
  78. Omran MM, Bolbol A, Fatheldin A (2008) Corporate governance and firm performance in Arab equity markets: Does ownership concentration matter? Int Rev Law Econ 28:32–45. doi: 10.1016/j.irle.2007.12.001 CrossRefGoogle Scholar
  79. Paredes R, Flor L (1993) Estructura de propiedad: ¿Maximizan ganancias las empresas en chile? Trim Econ LX 4:885–908Google Scholar
  80. Parsons C, Titman S (2008) Empirical capital structure: a review. Found Trends Financ 3:1–93CrossRefGoogle Scholar
  81. Pindado J, De La Torre C (2006) The role of investment, financing and dividend decisions in explaining corporate ownership structure: empirical evidence from Spain. Eur Financ Manag 12:661–687. doi: 10.1111/j.1468-036X.2006.00272.x CrossRefGoogle Scholar
  82. Raddatz C (2006) Liquidity needs and vulnerability to financial underdevelopment. J Financ Econ 80:677–722. doi: 10.1016/j.jfineco.2005.03.012 CrossRefGoogle Scholar
  83. Rajan R, Winton A (1995) Covenants and collateral as incentives to monitor. J Financ 50:1113–1146CrossRefGoogle Scholar
  84. Rajan RG, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88:559–586. doi: 10.2307/116849 Google Scholar
  85. Rozeff MS (1982) Growth, beta and agency costs as determinants of dividend payout ratios. J Financ Res 5:249–259CrossRefGoogle Scholar
  86. Sáenz González J, García-Meca E (2014) Does corporate governance influence earnings management in Latin American markets? J Bus Ethics 121:419–440. doi: 10.1007/s10551-013-1700-8 CrossRefGoogle Scholar
  87. Saona P (2014) Internal corporate governance mechanisms as drivers of firm value: panel data evidence for Chilean firms. Rev Manag Sci 8:575–604. doi: 10.1007/s11846-013-0115-3 CrossRefGoogle Scholar
  88. Saona P, Muro L (2015) Internal and external corporate governance systems and earnings management: a cross-country analysis. MadridGoogle Scholar
  89. Saona P, Vallelado E (2005) Ownership structure and growth opportunities as determinants of bank debt: evidence from Chilean companies. Manag Res 3:119–134Google Scholar
  90. Setia-Atmaja LY (2009) Governance mechanisms and firm value: the impact of ownership concentration and dividends. Corp Gov Int Rev 17:694–709CrossRefGoogle Scholar
  91. Shleifer A, Vishny RW (1986) Large shareholders and corporate control. J Political Econ 94:461–488CrossRefGoogle Scholar
  92. Silva F, Majluf N, Paredes R (2006) Ownership structure and performance: empirical evidence from Chilean firms. Corp Ownersh Control 3:173–181Google Scholar
  93. Soderstrom NS, Sun KJ (2007) IFRS adoption and accounting quality: a review. Eur Account Rev 16:675–702. doi: 10.1080/09638180701706732 CrossRefGoogle Scholar
  94. Yang C-C, Gu Y-X, Lee C-f, Lee Y-W (2010) Co-determination of capital structure and stock returns—A LISREL approach: an empirical test of Taiwan stock markets. Q R Econ Financ 50:222–233. doi: 10.1016/j.qref.2009.12.001 CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.John Cook School of BusinessSaint Louis UniversityMadridSpain
  2. 2.Facultad de Ciencias Económicas y AdministrativasUniversidad Católica de la Santísima ConcepciónConcepciónChile

Personalised recommendations