Substitutability and complementarity of corporate governance mechanisms in Latin America

Abstract

This research analyzes the relations between highly concentrated ownership structures, corporate governance mechanisms and firm value for a sample of Latin American firms. With concentrated ownership, the conflict of interest shifts from the principal-agent problem to a dominant-minority shareholder focus. To minimize the negative effects of ownership concentration on firm value, Latin American firms resort to a number of different corporate governance mechanisms including measures for leverage, takeover activity, board size, board independence, cross-listing, single/multiple-class shares, and the dual role of the CEO as chairman of the board. In addition, institutional investors assume monitoring roles and help curtailing asset expropriation. © 2012 Elsevier Inc.