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Corporate ownership and control contestability in emerging markets: The case of Colombia

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  • Gutiérrez, Luis H.
  • Pombo, Carlos
Abstract
This study examines the structure of voting control and blockholders' contestability for a sample of 233 non-financial listed firms in Colombia during 1996-2004. Corporate control is characterized by high ownership concentration and blockholder power, which implies low separation ratios between cash flow rights and voting rights. On average the separation ratios for the largest voting block is 0.95, while that for the fourth largest shareholder is 0.75. Corporate control is privately biased when there is direct monitoring of firm management by controlling owners. Regression results show that a more equal distribution of equity among large blockholders has a positive effect on firm value. Contestability matters most when firm shares are liquid and actively traded on the stock market. This finding is reinforced when the probability that the largest block can form a winning coalition decreases and performance variables, such as market to sales ratio and return on equity, are included in the estimating equations as substitutes for firm value. In addition, our estimations provide evidence that diversion of rents (tunneling) is limited by blockholders' contestability.

Suggested Citation

  • Gutiérrez, Luis H. & Pombo, Carlos, 2009. "Corporate ownership and control contestability in emerging markets: The case of Colombia," Journal of Economics and Business, Elsevier, vol. 61(2), pages 112-139.
    • Handle: RePEc:eee:jebusi:v:61:y:2009:i:2:p:112-139
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    2. Paula, Germano M. de, 2009. "Gobernanza corporativa, políticas públicas, mercado de capitales e inversiones extranjeras," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2010.
    3. Di Cai & Jin-hui Luo & Di-fang Wan, 2012. "Family CEOs: Do they benefit firm performance in China?," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 923-947, December.
    4. Viscencio Brambila, Héctor, 2009. "Gobernanza corporativa: el caso de México," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2017.
    5. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María-Andrea, 2012. "Family firms and financial performance: The cost of growing," Emerging Markets Review, Elsevier, vol. 13(4), pages 626-649.
    6. Pombo, Carlos & Taborda, Rodrigo, 2017. "Stock liquidity and second blockholder as drivers of corporate value: Evidence from Latin America," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 214-234.
    7. Pombo, Carlos & Gutiérrez, Luis H., 2011. "Outside directors, board interlocks and firm performance: Empirical evidence from Colombian business groups," Journal of Economics and Business, Elsevier, vol. 63(4), pages 251-277, July.
    8. Pombo, Carlos & De la hoz, María Camila, 2015. "Institutional Investors and Firm Valuation: Evidence from Latin America," Galeras. Working Papers Series 040, Universidad de Los Andes. Facultad de Administración. School of Management.
    9. Javier Mejia, 2018. "Social Networks and Entrepreneurship. Evidence from a Historical Episode of Industrialization," Documentos CEDE 16380, Universidad de los Andes, Facultad de Economía, CEDE.
    10. Gutiérrez, Luis & Pombo, Carlos, 2008. "Capital markets and corporate governance in Colombia," Galeras. Working Papers Series 025, Universidad de Los Andes. Facultad de Administración. School of Management.
    11. Zhujia Yin & Lijuan Liu & Haidong Wang & Fengming Wen, 2018. "Study on the ownership balance and the efficiency of mixed ownership enterprises from the perspective of heterogeneous shareholders," PLOS ONE, Public Library of Science, vol. 13(4), pages 1-15, April.
    12. Christian Espinosa & Carlos Maquieira, 2010. "Productivity: Sensibilidad del Flujo de Caja sobre la Inversión en Sudamérica: Evidencia para Chile," Working Papers 15, Facultad de Economía y Empresa, Universidad Diego Portales.
    13. Paula, Germano M. de, 2009. "Gobernanza corporativa y mercado de capitales en Brasil," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2013.
    14. Gutiérrez, Luis H. & Pombo, Carlos, 2009. "Mercados de capitales y gobernanza corporativa en Colombia," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2016.
    15. Amin, Qazi Awais & Cumming, Douglas, 2021. "Blockholders and real earnings management-the emerging markets context," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    16. López-de-Silanes, Florencio, 2009. "Gobierno corporativo y mercados financieros en la OCDE y América Latina: lecciones para los cambios regulatorios después de la crisis financiera," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2011.
    17. Wei Wang & Shi Liang & Ruichao Yu & Yumin Su, 2022. "Theoretical Evidence for Green Innovation Driven by Multiple Major Shareholders: Empirical Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 14(8), pages 1-18, April.
    18. Velloso, Helvia & Núñez Reyes, Georgina, 2009. "El papel de la gobernanza corporativa en la recuperación y desarrollo de los mercados de capital en Estados Unidos," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2012.
    19. De-la-Hoz, Maria Camila & Pombo, Carlos, 2016. "Institutional investor heterogeneity and firm valuation: Evidence from Latin America," Emerging Markets Review, Elsevier, vol. 26(C), pages 197-221.
    20. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María Andréa, 2013. "Corporate governance mechanisms in family firms: Evidence from CEO turnovers," Galeras. Working Papers Series 037, Universidad de Los Andes. Facultad de Administración. School of Management.
    21. KICHIKAWA Yuichi & IINO Takahiro & IKEDA Yuichi & IYETOMI Hiroshi, 2022. "Firm-level Study on the Global Connection through Stock Ownership Relations," Discussion papers 22112, Research Institute of Economy, Trade and Industry (RIETI).
    22. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María-Andrea, 2013. "Family firms and debt: Risk aversion versus risk of losing control," Journal of Business Research, Elsevier, vol. 66(11), pages 2308-2320.
    23. Clarke, Alvaro, 2009. "Buenos gobiernos corporativos para los negocios: el caso de Chile," Copublicaciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2015.
    24. Ouyang, Caiyue & Xiong, Jiacai & Huang, Kun, 2020. "Do multiple large shareholders affect tax avoidance? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 207-224.

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    More about this item

    Keywords

    Corporate control Multiple blockholders Corporate governance Firm value Colombian corporations;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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