Do Markets Penalize Agency Conflicts Between Controlling and Minority Shareholders? Evidence From Chile

Abstract

Using a sample of Chilean listed firms with widespread presence of economic conglomerates that use pyramid structures to control affiliated companies, we find that firms where controlling shareholders have higher coincidence between cash and control rights are persistently more valued by the market. We carefully check that our results are not driven by omitted variable biases and control for reverse causation using a feature of Chilean Corporations Law that provides an exogenous instrument for ownership concentration.

Board independence, firm performance and ownership concentration: Evidence from Chile

“…On the one hand, as expected, the regression coefficient for ownership concentration is negative and statistically significant, indicating that as the stake of the company on the controlling shareholder hands increases, the number of independent directors decreases. However, consistently with Lefort and Walker (2007), Lefort (2007) and Gugler and Yurtoglu (2003) within the context of general governance practices and payout policies, there is a non-lineal relationship between ownership concentration and board composition, meaning that as concentration rises above a threshold of approximately 50% the number of independent directors increases. More interestingly, there is a negative and statistically significant relationship between the degree of coincidence of cash flows and voting rights and the share of professional directors in the company's board.…”

“…Following Lefort and Walker (2007), this paper measures potential agency problems in the firm by the degree of coincidence between cash flows and control rights in the hands of controlling shareholders:…”

“…The board composition of nonfinancial listed companies, together with individual and consolidated balance sheets, come from public information provided by companies to the main supervisory Chilean entity (SVS) for the period 2000 to 2003. Conglomerates and pyramidal structures come from Lefort and Walker (2007). Market information is part of the data base of ECONOMATICA.…”

Ownership Dynamics with Large Shareholders: An Empirical Analysis

“…A follow-up paper byMajluf and Silva (2008) uses data from 2000 and 2003 and finds that controllers' stakes are on average 66%. Finally,Lefort and Walker (2007) show that the stake owned by the 3 largest shareholders for the period 1990-2002 averages 59%.…”

The Unusual Case of the Discount Offers for Taking the Control: Evidence from Romania

“…a political career) will make his or her behaviour consistent with the interests of the minority shareholders (Holderness, 2003). In some cases, especially in emerging economies, conglomerates can protect somehow the companies in their turbulent environment, characterized by corruption, poor institutions, or imperfect capital markets, so an interest to acquire a controlling package of shares can be justified (Lefort and Walker, 2007). For all these reasons, a (positive) control premium (an offer price higher than the market price before the announcement) is logically supposed in most cases.…”