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Review of Managerial Science

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22.09.2016 | Original Paper

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

verfasst von: Paolo Saona, Pablo San Martín

Erschienen in: Review of Managerial Science | Ausgabe 1/2018

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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.

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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.

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.

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).

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.

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.

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 \(\varepsilon_{it - 1}\).

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.

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.

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

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

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

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).

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).

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 \(OWN^{2} .\)

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Titel: Determinants of firm value in Latin America: an analysis of firm attributes and institutional factors
verfasst von: Paolo Saona
Pablo San Martín
Publikationsdatum: 22.09.2016
Verlag: Springer Berlin Heidelberg
Erschienen in: Review of Managerial Science / Ausgabe 1/2018
Print ISSN: 1863-6683
Elektronische ISSN: 1863-6691
DOI: https://doi.org/10.1007/s11846-016-0213-0

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