Diversification and control in emerging markets: The case of Chilean firms

Abstract

Articulo de publicación ISIWe analyze the effect of two types of corporate diversification (business diversification and ownership diversification) on the market value of the Chilean firms. For a sample of 83 nonfinancial firms listed on the Santiago Stock Market from 2005 to 2013, we find a discount for both business and ownership diversification, which is consistent with that reported for other economic or institutional settings. Second, we find that the business diversification discount is related to the ownership structure and is due to the excess of the largest shareholders’ control rights. Third, we find that the ownership diversification discount becomes a premium when the ownership diversification enables the control of the affiliated firms. This effect can be explained by the improvement of internal capital markets that allows overcoming the limitations of Chilean external capital marketsChilean Fondecyt Grant 11110021 Spanish Ministry of Science and Innovation ECO2011-29144-C03-0

International diversification, ownership structure and performance in an emerging market: evidence from Chile

“…However, the costs and inexperience of participating in international markets has led firm performance to decrease. Regarding the concentration of ownership, this is negatively related to performance (column 2, DFC1 ¼ À1,531), a result similar to that reported in previous studies for Chile (Espinosa et al, 2018;Jara-Bertin et al, 2015). Affiliation with an economic group has a positive effect on financial performance (column 3, BUSGROUP ¼ 0.939), in line with that reported by Torres et al (2017), like pyramidal property, although the latter is only significant at 10% of the significance level (column 4, DVDFC ¼ 0.545).…”

“…Estimation of model (1) y (2) by ordinary least squares would yield biased and inconsistent results. On the other hand, the literature on diversification and performance has highlighted the existence of endogenous selection problems in the models that incorporate these variables (Campa & Kedia, 2002;Jara-Bertin et al, 2015). Specifically, international business literature portrays international diversification as a strategic decision through which the company leverages its firm-specific advantages in foreign markets (Bobillo et al, 2010), however, the causality link with performance can be in two directions, either its advantages allow the firm to increase its profitability and with additional resources expand into foreign markets or its advantages allow the firm to enter into foreign markets and as a result increase its profitability (Mendoza et al, 2020).…”

“…Some international business scholars describe emerging economy firms with concentrated ownership as facing "principal-principal" rather than principal-agency challenges (Bhaumik & Selarka, 2012), which explains that firm wealth is neither invested profitably nor disgorged in the form of dividends that would enrich minority shareholders (Bhaumik et al, 2019). In this line, Chilean firms present a high ownership concentration (Jara-Bertin et al, 2015), primarily in the hands of individual shareholders or well-diversified conglomerates (Larra ın & Vergara, 2000;Lefort & Gonz alez, 2008;Lefort & Walker, 2000) who control the firms through direct ownership and/or pyramidal structures (Buchuk et al, 2014;Masulis et al, 2011;Silva & Majluf, 2008). This is because the Chile legal system has not given enough protection to the investors to avoid these concentration levels.…”

The Effect of Financial Market Frictions to Firm’s Diversification Level in Indonesia

“…Diversification is classified into two categories [12]. Business diversification and ownership diversification.…”

Duplicidad de roles y conflictos de interés: las corredoras de bolsa en Chile

“…En conclusión, se puede o es posible indicar que de acuerdo a la arquitectura del sistema financiero (Tadesse, 2001) el sistema chileno puede definirse como orientado hacia la banca (Jara-Bertin et al, 2015). Es así, como en general lo podemos describir como un sector altamente concentrado y dada su condición de mutual, hacen que sea un caso interesante de inversionista institucional.…”