Skip to main content
SpringerLink
Log in

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

  • Original Paper
  • Published:
Review of Managerial Science Aims and scope Submit manuscript

Abstract

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Crisóstomo et al. (2014) claim that nonfinancial firms as blockholders in Brazil bring more active management monitoring; reduce the likelihood of overinvestment; lower the change of managerial discretionary behavior; reduce the agency conflicts between ownership and control; and improve the information with financial markets. In that sense, Dyck and Zingales (2004) analyze the premium paid for control blocks in 37 countries. Their findings suggest that the premium is 27 % for Argentina and Colombia, 65 % for Brazil, 18 % for Chile, 34 % for Mexico, and 14 % for Peru.

  2. The free cash flows are those available for the discretional use of managers once the future growth opportunities with positive net present values have been financed.

  3. Covenants are particular clauses in debt contracts of firms that restrict business policy, giving creditors the possibility of putting precise actions into force and enhancing their incentives to monitor (Rajan and Winton 1995).

  4. Despite of these major limitations of the reduced-form OLS estimations, for robustness purposes to double check our results, the models were also estimated under this method. In general, although the signs of the most important parameters were the same as those reported in this work; the magnitude of the regression coefficients were quite different. For space-saving reasons, outputs under OLS estimations are not tabulated but are available upon request to the authors. The authors appreciate the valuable comments of one of the referees in addressing properly the estimation method through panel data analysis with robust standard errors.

  5. Love (2011) argues that neither the fixed-effect nor the instrumental variables techniques fully remove the possibility of time varying omitted variables, on the one hand; and none of these techniques address reverse causality, on the other hand.

  6. However, this is not considered a problem because \(\Delta \varepsilon_{it} = \varepsilon_{it} - \varepsilon_{it - 1}\) might be correlated with \(\Delta \varepsilon_{it - 1} = \varepsilon_{it - 1} - \varepsilon_{it - 2}\) given that both share the common term \(\varepsilon_{it - 1}\).

  7. We used the Fisher-type test because it does not require strongly balanced data. This test for panel data unit roots follows a meta-analysis perspective. That is, this test conducts unit-root tests for each panel individually, and then combines the p-values from these tests to produce an overall test.

  8. Financial firms, for example, have very different financing policies which are determined by regulatory constraints, reserve requirements, and portfolio risk, among other variables, which ensure the financial decisions are differently determined from non-financial firms. Thus, since in our work we use leverage as an explanatory variable, we had to remove all financial firms.

  9. The latest update took place in November 2013. Information can be downloaded from the permanent URL http://go.worldbank.org/X23UD9QUX0.

  10. The latest update took place in September 2014. Information can be downloaded from www.govindicators.org.

  11. We appreciate the thorough recommendation of one of the anonymous referees to measure the dependent variable in this way.

  12. A much better way to analyse the ownership structure is based on the relationship between the cash flow rights and voting rights of the major/controlling shareholder. However, since we do not account for this sort of information from our firms´ sample, we had to measure the ownership concertation based only on the direct voting rights. Despite this particular limitation in the construction of these variables, the measure applied in the empirical analysis has also been widely used in the previous empirical literature (Gupta et al. 2009; Jara et al. 2008; López and Crisóstomo 2010).

  13. This is a consequence of the gradual adoption of the IFRS of the firms in our sample during the period of analysis. For instance, Brazil and Chile adopted the international accounting standards in 2010, Argentina in 2011, Mexico and Peru in 2012 and Colombia in 2015 (outside of our period of analysis).

  14. The computation of the critical value in the first regression of Table 3 is done by calculating the first derivative of this regression with respect to the \(OWN\) variable, and then making it equal to zero as \(\frac{\partial FV}{\partial OWN} = 0\). After that we have to solve for \(OWN\) which represents the point at which the firm value is maximized. Specifically speaking, this solution takes the form: \(\frac{\partial FV}{\partial OWN} = 2.202 - 2 \times \left( {2.937 \times OWN} \right) = 0\). Consequently, when \(OWN = 37.50\,\%\) the firm value is maximized. Idem calculations are done for all the other regressions which include \(OWN^{2} .\)

References

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Ang JS, Cole RA, Lin JW (2000) Agency costs and ownership structure. J Financ 55:81–106

    Article  Google Scholar 

  • Arellano M (2002) Sargan’s instrumental variables estimation and the generalized method of moments. J Bus Econ Stat 20:450–459

    Article  Google Scholar 

  • Arellano M (2003) Panel data econometrics. Oxford University Press, Oxford

    Book  Google Scholar 

  • Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equation. Rev Econ Stud 58:277–297

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Barclay MJ, Smith CW (1996) On financial architecture. Leverage, maturity, and priority. J Appl Corp Financ 8:4–17

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Barclay MJ, Max LM, Smith CW (2003) The joint determination of leverage and maturity. J Corp Financ 9:149–167

    Article  Google Scholar 

  • 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 

  • Beck T, Demirgüç-Kunt A, Levine R (2000) A new database on the structure and development of the financial sector. World Bank Econ Rev 14:597–605

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econom 87:115–143

    Article  Google Scholar 

  • Booth L, Aivazian V, Demirgüç-Kunt A, Maksimovic V (2001) Capital structures in developing countries The. J Financ 56:87–130

    Article  Google Scholar 

  • Bottazzi L, Da Rin M, Hellmann T (2009) What is the role of legal systems in financial intermediation? Theory and evidence. J Financ Intermed 18:559–598

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Brav A, Graham J, Harvey C, Michaely R (2005) Payout policy in the 21st century. J Financ Econ 77:483–527

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Campa JM, Kedia S (2002) Explaining the diversification discount. J Financ 57:1731–1762

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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/j.frl.2006.06.003

    Article  Google Scholar 

  • Choi I (2001) Unit root tests for panel data. J Int Money Financ 20:249–272. doi:10.1016/S0261-5606(00)00048-6

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Claessens S, Djankov S, Fan JPH, Lang LHP (2002) Disentangling the incentive and entrenchment effects of large shareholdings. J Finance 57:2741–2771

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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, Cambridge

    Google Scholar 

  • Demirguç-Kunt A, Maksimovic V (1998) Law, finance, and firm growth The. J Financ 53:2107–2137

    Article  Google Scholar 

  • 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 15:317–321

    Article  Google Scholar 

  • Denis DJ, Denis DK, Sarin A (1997) Agency problems equity ownership, and corporate diversification. J Financ 52:135–160

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Dyck A, Zingales L (2004) Private benefits of control: an international comparison. J Financ 59:537–600

    Article  Google Scholar 

  • Easterbrook FH (1984) Two agency-cost explanations of dividends. Am Econ Rev 74:650–659

    Google Scholar 

  • Espinosa C (2009) Estructura de propiedad y desempeño de la firma: El caso chileno Academia. Rev Latinoam Adm 43:41–62

    Google Scholar 

  • 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) 23:95–116

    Google Scholar 

  • Espinosa C, Maquieira C, Vieito JP, González M (2012) Capital structures in developing countries: the Latin American case. Investig Econ LXXI:35–54

    Google Scholar 

  • Ferris S, Sen N, Unlu E (2009) An international analysis of dividend payment behavior. J Bus Financ Account 36:496–522

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Gibson MS (2003) Is corporate governance ineffective in emerging markets? J Financ Quant Anal 38:231–250

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Graham JR, Harvey CR (2001) The theory and practice of corporate finance: evidence from the field. J Financ Econ 60:187–243

    Article  Google Scholar 

  • Gupta PP, Kennedy DB, Weaver SC (2009) Corporate governance and firm value: evidence from Canadian capital markets. Corp Ownersh Control 6:293–307

    Google Scholar 

  • Harris M, Raviv A (1991) The theory of capital structure. J Financ 46:297–355

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Hovakimian A, Li G (2011) In search of conclusive evidence: how to test for adjustment to target capital structure. J Corp Financ 17:33–44

    Article  Google Scholar 

  • 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>3.0.co;2-#

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Jensen MC (1986) Agency cost of free cash flow, corporate finance, and takeovers. Am Econ Rev 72:323–329

    Google Scholar 

  • Jensen MC, Meckling W (1976) Theory of the firm: managerial behaviour, agency cost and ownership structure. J Financ Econ 3:305–360

    Article  Google Scholar 

  • Kim J-O, Mueller CW (1978) Introduction to factor analysis: what it is and how to do it. Sage University, Beverly Hills

    Book  Google Scholar 

  • 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

    Article  Google Scholar 

  • Klapper LF, Love I (2004) Corporate governance, investor protection, and performance in emerging markets. J Corp Financ 10:703–728

    Article  Google Scholar 

  • Klock MS, Mansi SA, Maxwell WF (2005) Does corporate governance matter to bondholders? J Finan Quant Anal 40:693–719. doi:10.1017/S0022109000001940

    Article  Google Scholar 

  • La Porta R, Lopez-De-Silanes F, Shleifer A, Vishny R (2000) Agency problems and dividend policies around the world. J Financ 55:1–33

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Lang LHP, Ofek E, Stulz R (1996) Leverage, investment, and firm growth. J Financ Econ 40:3–29

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Lins KV (2003) Equity ownership and firm value in emerging markets. J Financ Quant Anal 38:159–184. doi:10.2307/4126768

    Article  Google Scholar 

  • 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 

  • 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 31:119–146

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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 5:49–81

    Google Scholar 

  • 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 11:1–26

    Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Myers SC (1984) Capital structure puzzle. J Financ 39:575–593

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Paredes R, Flor L (1993) Estructura de propiedad: ¿Maximizan ganancias las empresas en chile? Trim Econ LX 4:885–908

    Google Scholar 

  • Parsons C, Titman S (2008) Empirical capital structure: a review. Found Trends Financ 3:1–93

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Raddatz C (2006) Liquidity needs and vulnerability to financial underdevelopment. J Financ Econ 80:677–722. doi:10.1016/j.jfineco.2005.03.012

    Article  Google Scholar 

  • Rajan R, Winton A (1995) Covenants and collateral as incentives to monitor. J Financ 50:1113–1146

    Article  Google Scholar 

  • Rajan RG, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88:559–586. doi:10.2307/116849

    Google Scholar 

  • Rozeff MS (1982) Growth, beta and agency costs as determinants of dividend payout ratios. J Financ Res 5:249–259

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Saona P, Muro L (2015) Internal and external corporate governance systems and earnings management: a cross-country analysis. Madrid

  • Saona P, Vallelado E (2005) Ownership structure and growth opportunities as determinants of bank debt: evidence from Chilean companies. Manag Res 3:119–134

    Google Scholar 

  • Setia-Atmaja LY (2009) Governance mechanisms and firm value: the impact of ownership concentration and dividends. Corp Gov Int Rev 17:694–709

    Article  Google Scholar 

  • Shleifer A, Vishny RW (1986) Large shareholders and corporate control. J Political Econ 94:461–488

    Article  Google Scholar 

  • Silva F, Majluf N, Paredes R (2006) Ownership structure and performance: empirical evidence from Chilean firms. Corp Ownersh Control 3:173–181

    Google Scholar 

  • Soderstrom NS, Sun KJ (2007) IFRS adoption and accounting quality: a review. Eur Account Rev 16:675–702. doi:10.1080/09638180701706732

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

Download references

Acknowledgments

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).

Author information

Authors and Affiliations

  1. John Cook School of Business, Saint Louis University, Madrid Campus. Av. Del Valle 34, 28003, Madrid, Spain

    Paolo Saona

  2. Facultad de Ciencias Económicas y Administrativas, Universidad Católica de la Santísima Concepción, Av. Alonso de Ribera 2850, Concepción, Chile

    Pablo San Martín

Authors
  1. Paolo Saona
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Pablo San Martín
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Paolo Saona.

Appendix

Appendix

1.1 Sector-adjusted firm value

$$FV = \frac{{MkCptz_{it} + TD_{it} }}{{TA_{it} }}$$

where MkCptz it corresponds to the market capitalization of the firm i in year t. TD it is the total short- and long-term debt and TA it is the firm´s total assets. Following López and Crisóstomo (2010), the sector-adjusted firm value is then computed by subtracting the median value for the firms in the same industrial sector, year and country.

1.2 Corporate ownership concentration

OWN corresponds to the percentage of outstanding shares in the hands of the controlling shareholder.

INSOWN is the percentage of closely held shares which includes the shares in the hands of executives, directors, controlling shareholder, cross holdings (e.g. related parties), government, and employees.

1.3 Capital structure

$$LEV = \frac{{TD_{it} }}{{TA_{it} }}$$

1.4 Dividend policy

$$DIV1 = \frac{{DPS_{it} }}{{EPS_{it} }}$$

where DPS it is the annual dividend per share and EPS it is the earnings per share.

$$DIV2 = \left\{ {\begin{array}{*{20}l} {1,} \hfill & {if\, the\, country \,requires \,mandatory \,dividends} \hfill \\ 0 \hfill & {otherwise} \hfill \\ \end{array} } \right.$$

1.5 Firm size

$$SIZE = Ln\left( {TA_{it} } \right)$$

1.6 Profitability

$$ROA = \frac{{EBT_{it} }}{{TA_{it} }}$$

where EBT it is the pretax income.

1.7 Insolvency risk

$$Z = 6.56WC_{it} + 3.26RE_{it} + 6.72EBIT_{it} + 1.05BvE_{it} + 3.25$$

where WC it is the working capital over total assets, RE it is the retained earnings over total assets, EBIT it is the earnings before interest and taxes, and BvE it is the book value of equity over total liabilities.

1.8 Corporate diversification

DIVERSIF corresponds to the number of industry groups in which a firm operates according to the SIC (Standard Industrial Classification) codes.

IFRS

$$IFRS = \left\{ {\begin{array}{*{20}l} {1,} \hfill & {if\, the\, company \,uses \,IFRS} \hfill \\ {0,} \hfill & {otherwise} \hfill \\ \end{array} } \right.$$

where IFRS is the International Financial Reporting System.

1.9 Legal and regulatory systems

All the following legal system variables were obtained from Kaufmann et al. (2011) where the indexes range from approximately −2.5 (weak) to 2.5 (strong) governance performance, although for our sample these variables do not have such extreme values.

  1. 1.

    VA measures the Voice and accountability.

  2. 2.

    PS measures the Political stability and absence of violence/terrorism

  3. 3.

    GE measures the Government effectiveness.

  4. 4.

    RQ measures the Regulatory quality.

  5. 5.

    RL measures the Rule of law.

  6. 6.

    CC measures the Control of corruption.

1.10 Bank Concentration

BANKCONC is the market share of the three largest banks by country.

1.11 Financial development

All the following financial development variables were obtained from Beck et al. (2000).

DBAGDP is the claims on domestic real nonfinancial sector by deposit money banks as a share of GDP, calculated using the following deflation method: \(\frac{{0.5\left[ {\frac{{F_{t} }}{{P_{et} }} + \frac{{F_{t - 1} }}{{P_{et - 1} }}} \right]}}{{\left[ {\frac{{GDP_{t} }}{{P_{at} }}} \right]}}\); where F is deposit money bank claims, P e is end-of the period Consumer Price Index (CPI), and P a is average annual CPI.

PCBGDP is the Private credit by deposit money banks and other financial institutions as a share of GDP, calculated using the following deflation method: \(\frac{{0.5\left[ {\frac{{F_{t} }}{{P_{et} }} + \frac{{F_{t - 1} }}{{P_{et - 1} }}} \right]}}{{\left[ {\frac{{GDP_{t} }}{{P_{at} }}} \right]}}\); where F is the credit to the private sector, P e is end-of the period Consumer Price Index (CPI), and P a is average annual CPI.

BCBD is the private credit by deposit money banks as a share of demand, time and saving deposits in deposit money bank.

SMKGDP which is the value of listed shares to GDP, calculated using the following deflation method: \(\frac{{0.5\left[ {\frac{{F_{t} }}{{P_{et} }} + \frac{{F_{t - 1} }}{{P_{et - 1} }}} \right]}}{{\left[ {\frac{{GDP_{t} }}{{P_{at} }}} \right]}};\) where F is the stock market capitalization, P e is end-of the period CPI, and P a is average annual CPI.

SMKVTGDP is the total shares traded on the stock market exchange to GDP.

SMKTO is the ratio of the value of total shares traded to average real market capitalization, the denominator is deflated using the following method: \(\frac{{\frac{{T_{t} }}{{P_{at} }}}}{{0.5\left[ {\frac{{M_{t} }}{{P_{et} }} + \frac{{M_{t - 1} }}{{P_{et - 1} }}} \right]}};\) where T is total value traded, M is the stock market capitalization P e is end-of the period CPI, and P a is average annual CPI.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Saona, P., San Martín, P. Determinants of firm value in Latin America: an analysis of firm attributes and institutional factors. Rev Manag Sci 12, 65–112 (2018). https://doi.org/10.1007/s11846-016-0213-0

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11846-016-0213-0

Keywords

JEL Classification

Search

Navigation