2.18. Internal corporate governance mechanisms as determinants of firm value: Panel data evidence for chilean firmas

Autores: P. Saona Hoffmann, Phd.

ABSTRACT
The paper analyses to what extent ownership structure, capital structure, and dividend policy as corporate governance mechanisms determine firm value. From a data panel of publicly quoted Chilean firms for the years 2002 to 2010, we find that there is an inverse U-shaped relationship between ownership concentration and firm value. This finding is supported by the supervision hypothesis –the positive relation between ownership concentration and firm value; and the expropriation hypothesis –the negative relation between ownership concentration and firm value. We also find that there is a positive relationship between leverage and the dividend pay-out and firm value.

In this case, these two mechanisms reduce the free cash flows which otherwise might be used opportunistically by managers in their own interests (free rider problem). Contrary to the previous empirical literature in Chile, it is found that the mere fact that a firm is affiliated with a business group/conglomerate positively affects its performance. This positive effect is basically driven by the development of intergroup capital markets, and the governance imposed by the rules of the conglomerate.
Key words: corporate governance, ownership structure, capital structure, dividend policy, panel data