Stock liquidity and second
blockholder as drivers of corporate
value: Evidence from Latin
America
Carlos Pombo
Rodrigo Taborda
No.
41
NOVIEMBRE DE 2015
Documentos
CEDE
Serie Documentos Cede, 2015-41
ISSN 1657-7191 Edición electrónica.
Noviembre de 2015
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Stock liquidity and second blockholder as drivers of corporate
value: Evidence from Latin America
∗Carlos Pombo
†Rodrigo Taborda
‡Abstract
This paper examines the relationship between firm value and blockholders in Latin Amer-ica. Econometric results for a comprehensive data set of more than 550 firms listed in the six largest stock markets of the region support a positive effect of variables measuring the exis-tence, contestability, dispersion and identity of blockholder on performance (Tobin’s Q) only for highly liquid stocks. The identity of the second largest blockholder (family, foreign, finan-cial or the State) emerges as critical for such effects. The study supports the voice and exit approach as a disciplinary mechanism on firm performance.
JEL codes:G32, G34.
Key words:Blockholders, firm value, corporate governance.
∗We are grateful to Luis Guti´errez, for helpful comments to previous versions of this paper. Also to Mar´ıa
Camila de la Hoz helpful research assistance.
†Universidad de los Andes. Facultad de administraci ´on. Calle 21 # 1 - 20. Bogot´a, Colombia. Phone
571-3394949 x. 3976, 3675. E-mail:[email protected]. Corresponding author.
‡Universidad de los Andes. Facultad de administraci ´on. Calle 21 # 1 - 20. Bogot´a, Colombia. E-mail:
Liquidez y segundo accionista como determinates del valor de las
empresas: Evidencia en Latinoam´erica
∗Carlos Pombo
†Rodrigo Taborda
‡Abstract
El documento estudia la relaci ´on entre valor de la firma y grupos de accionistas en Lati-noam´erica. Los resultados econom´etricos de una base de datos de mas de 550 empresas activas en los seis mercados accionarios m´as grandes de la regi ´on, sugieren un efecto positivo de las variables que miden la existencia, capacidad de reto al accionista mayoritario, dispersi ´on e identidad del grupo de accionista sobre la variable de desempe ˜no (Q de Tobin), pero solo para las acciones con mayor liquidez. La identidad del segundo accionista mas grande (familia, ex-tranjero, financiero o estatal) es igualmente importante para el efecto sugerido. Los resultados respaldan los mecanismos de voz y amenaza de salida, como herramientas de disciplina sobre el desempe ˜no de las firmas.
C ´odigos JEL:G32, G34.
Palabras clave:Grupos de accionistas, valor de la firma, gobierno corporativo.
∗Se agradecen los comentarios de Luis Guti´errez a versiones anteriores del documento. Igualmente a
Mar´ıa Camila de la Hoz por su trabajo de asistente de investigaci ´on.
†Universidad de los Andes. Facultad de administraci ´on. Calle 21 # 1 - 20. Bogot´a, Colombia. Phone
571-3394949 x. 3976, 3675. E-mail:[email protected]. Autor para correspondencia.
‡Universidad de los Andes. Facultad de administraci ´on. Calle 21 # 1 - 20. Bogot´a, Colombia. E-mail:
1 Introduction
Recent empirical literature on blockholder ownership has focused on the presence of multiple
large shareholders and their interactions, and how these can affect firm management either through
direct intervention (monitoring) or through share trading. Edmans(2013), for example, argues
that the presence of multiple blockholders creates two conflicting governance effects. In the first,
known as the voice mechanism or shareholder activism, multiple blockholders serve “as a
com-mitment device to reward or punish the manager ex-post for his actions”. By contesting
con-trol, blockholders can align interests to implement either profitable projects or simply to monitor
managers. The second effect, known as the exit mechanism, occurs in firms with multiple
block-holder structures and sees dispersed (and small) blockblock-holders punish the largest shareblock-holder, or
management, by exiting the firm, i.e. by trading their shares, thus affecting firm value. This
approach to corporate governance highlights that, by possessing better information about firm
value, smaller blockholders can use the exit strategy as a device to discipline the behavior of the
largest blockholder. On the one hand, when blockholders contest control, a positive effect on
monitoring appears, since the second or third blockholders are given more equal voting rights
in circumstances where, due to other mechanisms, they cannot exert absolute control. These
mechanisms may include the issuing of non-voting shares or multiple share classes, pyramidal
and cross-share ownership structures, or the existence of disproportionate board representation
(Villalonga and Amit,2010).
On the other hand, a negative effect of blockholder ownership may result from the
possibil-ity that small shareholders might be subject to expropriation by large shareholders, turning the
agency problem from one of controlling blocks to controlling minorities. In such circumstances
firm management responds to the interests of the controlling owners, reducing firm value when
large shareholders derive private benefits from related party transactions. In addition, excessive
monitoring by blockholders induces a loss of value, since management may refrain from certain
profitable initiatives when a vigilante approach is followed by large shareholders.
The paradigm of the benefits of a widespread ownership structure, mainly fostered by the
prevalent -though not precisely accurate- belief that the United States is characterized by diffuse
ownership, has led to increased academic interest in studying corporate governance in settings
where large shareholders dominated the landscape.1 At the same time, this has view defined a
policy agenda that favors increasing ownership dispersion in developing countries as a corporate
governance mechanism.
This perspective has evolved in line with the reality that blockholders have come to represent
the dominant ownership structure in corporate finance. Moshirian et al.(2014) summarize
ev-idence that shows how ownership by large shareholders is also a prevalent corporate structure
in developed countries. Under this new reality, whereby widespread ownership has come to be
1An example of the argument that ownership is widespread is provided by the work ofBecht(2001), whileHolderness
(2009) has been pivotal in debunking this view.
used as a mechanism for increasing corporate governance and ultimately corporate value in
de-veloping countries, public policy is at a crossroads. Where to go? Should corporate governance
be increased or ownership structures disseminated? The former approach has been widely
ac-cepted and implemented in developing countries (McGee,2009). Whether or not such positive
initiatives exist in practice, beneficial effects on corporate value are not guaranteed. The latter
approach, on the other hand, cannot be warranted, as a policy interventions aimed at reducing
the concentration ownership are hardly an economic policy option.
The highly concentrated ownership structure of public and private firms in Latin America
provides a useful scenario for an empirical investigation of the association between firm value
and ownership in developing countries. Leaving aside the option of dispersed ownership or
tighter corporate governance laws or guidelines, the remaining question is how intermediate
ownership structures relate to firm value.
This paper examines the relationship between firm value and multiple blockholders from such
a standpoint. In particular, it looks at presence, contestability, distribution and type of
block-holder as they relate to market corporate value. Econometric results for a comprehensive data
set of more than 550 firms listed in the six largest stock markets of the region between 1997 and
2011 support a positive effect of variables measuring the existence, contestability, dispersion and
blockholder’s identity upon Tobin’s Q only for highly liquid stocks and three of the second
block-holder identities (family, foreign and financial institution). The study supports the validity of the
voice and exit approach as a disciplinary mechanism on firm performance and highlights the role
of liquidity and of the nature of the second largest blockholder in question.
The paper contributes to the literature by addressing empirically two analytical alternatives
that can shed light on approaches to increasing firm value under a setting of high ownership
con-centration in emerging markets. First, it emphasizes that blockholder contestability is effective
within an intermediate ownership structure of highly liquid stocks and, second, it provides
ev-idences that the nature of the second largest blockholder is central in explaining firm valuation.
Both options identify the potential benefits blockholders receive as a result of actions taken by the
second large shareholder. The above behavior deters other voting blocks from forming coalitions,
diverting the firm’s cash flow through bad quality investment projects or attempting to prevent
related party transactions.
Ownership structures in Latin America allows to hypothesize that the second blockholder is
crucial in this connection and that the situation described for the region might also elucidate the
case of other emerging markets. Nearly 50% of the firms in this study have a controlling
block-holder with equity rights above 50%, while less than 5% of firms are widely held (i.e. the largest
shareholder has less than 10% of equity). The remaining 45% of firms in the sample exhibit
mul-tiple blockholders without direct control, but that are still of considerable size (i.e. the largest
shareholder has more than 10% of equity), meaning that there is scope for forming controlling
last group of firms shows (using the mean value) that when the largest voting block colludes with
the second largest, the coalition represents around 45% of direct votes, a figure that rises to 54%
when the third top blockholder is included. High ownership concentration implies low
sepa-ration ratios between ownership and control. Empirical country-level case studies on corporate
ownership in Latin America, based on real sector firms, show that separation ratios between
own-ership and control are close to 0.85 (Guti´errez and Pombo,2009). This means that a controlling
shareholder will need 42% of equity rights if they are to obtain control over a firm’s voting rights.
Thus, in targeting the empirical analysis on the role of blockholder coalitions and their effects on
firm value, measured by direct votes, is fully justified by the circumstances on the ground.2
The empirical approach of this article uses the available information to establish an
appro-priate association between ownership structure and firm value. A fixed effects transformation
for the panel data structure is favored over a random effects transformation. Several firm-level
control variables are included, as well as country macroeconomic characteristics. A high liquidity
dummy (shares in the top 75th percentile of liquidity of each country) is interacted with the
vari-able(s) of interest and the the average marginal effect is obtained. This is the baseline estimation
and the associated results hold for all our measures of presence, concentration, dispersion and
coalition of blockholders.3
Furthermore, the aforementioned interaction is expanded using a firm dummy variable
iden-tifying the second largest blockholders (family, local, foreign, financial institution and state).
Un-der this specification some of the second blockholUn-ders have a statistically significant effect on firm
value, meaning that these are the types of shareholders that reinforce the previous result.
The main result of the paper is the identification of a positive association between large
share-holders and firm value only in highly liquid stocks, in particular when family, foreign or financial
entities are the second blockholder. The approach used to examine blockholders goes beyond
presence or size, extending to the dispersion of shareholders and their ability to foster good
in-ternal corporate governance (contestability).
The remainder of the document is structured as follows: section 2 presents the theoretical
framework and development of the working hypotheses; section3 analyzes the data and
vari-ables included in the empirical model; section 4 presents the econometric analysis; Section 5
concludes.
2 Theoretical framework and hypotheses
2.1 The contest between blockholders for control
Theoretical models and empirical studies in corporate governance have addressed settings where
more than one large blockholder allows the emergence of contestability on the basis of coalitions.
2Indirect estimation of the wedge between ownership and control sets it at 0.75, similar to the results of direct
mea-surement. The indirect wedge indicator is defined as the Shapley value solution of a four-voting oceanic game to largest shareholder cash flow rights (Guedes and Loureiro,2006).
3Endogeneity is tested in favor of the initial estimation results that support the main findings.
Two competing views have been proposed. The first refers to the positive effect of blockholder
presence, due to their monitoring role and the second to the benefits of control when large groups
of shareholders form coalitions in order to conduct tunneling strategies that enable them to divert
a firm’s cash flow.
Regarding the first view,Bloch and Hege(2003) analyzed a firm’s governance framework in
which two large blockholders and the remaining dispersed shareholders interact in the
sharehold-ers’ general meeting. The authors show that control contestability between two blockholders that
are seeking to attract the votes of small shareholders tends to reduce rent extraction. Bennedsen
and Wolfenzon (2000) developed a model of firm control where firm founders dilute their
(ini-tial) control by distributing proportional equity holdings to several large shareholders, allowing
them to form a coalition, through which, in turn, they can obtain control and curb private benefit
extraction. Gomes and Novaes(2005) model corporate governance according to two scenarios.
The first occurs when insiders, or the initial founders of a firm, face investment opportunities that
are difficult to evaluate to the extent that sharing control creates bargaining problems. As a
re-sult, ownership structures in which there is only one large shareholder monitoring management
represent the most efficient system for protecting minority shareholders. However,Gomes and
Novaesalso found that in weak legal environments, the optimal ownership structure involves
shared control between multiple blockholders. In these circumstances, the presence of multiple
blockholders is positively associated with firm value.
The second view concerns the benefits of control that accrue when large groups of
share-holders form coalitions in order to conduct tunneling strategies that enable them to divert cash
flow. Zwiebel(1995) argues that investors may choose to hold a significant block equity in a
firm because it confers them partial benefits of control, especially in those cases where the next
blockholder is insufficiently large and they feel the need to form a coalition.
The theoretical model of control contestability had its origins inLa-Porta et al.(2002), who
modeled managerial rent extraction, and inMaury and Pajuste(2005), who extended the baseline
model to reveal contestability behavior more explicitly among multiple large shareholders. The
model has two main assumptions: the existence of multiple large shareholders can reduce profit
diversion (i.e., that control contestability is value-enhancing), and diversion of profits by the
con-trolling coalition is costly. The theoretical work ofLa-Porta et al.andMaury and Pajustesupports
the first two hypotheses of this paper:
H1: Firm value (performance) increases with blockholder presence and higher power
con-testability.
H2: The higher the probability of forming a controlling coalition among the largest
sharehold-ers increases, more likely will be rent divsharehold-ersion to the benefit of the coalition, lowering firm value
2.2 The role of the second blockholder
Empirical research on corporate governance suggests that the type of controlling shareholder
present in a given company is essential to understanding the link between ownership structure,
agency costs and firm value. Claessens et al.(2002) find that the expropriation of minority
share-holders is more likely when the largest controlling shareholder is a family or the state. The
un-derlying assumption is that different types of blockholders have distinct incentives and abilities
to monitor the controlling shareholder. Empirical results from regional or country case studies
on the marginal effects of blockholder identity and firm value confirm that the kind of second
blockholder is important when it comes to contesting the agency costs of controlling owners. For
instance,Jara-Bertin et al.(2008), based on sample of 1,200 European corporations, find that such
firms where the two largest shareholders can be classified as “family shareholders” firm value
de-creases. Similarly,Attig et al.(2009) who studied a sample of 1,252 East Asian public companies
found that the presence of either a family or the state as second largest shareholder represents a
value premium of between 0.23 and 0.96 on firms Tobin’s Q. In contrast, there is no significant
effect if the second blockholder is a widely held firm.
Recent research on family firms has focused on analyzing the effects of the presence of
mul-tiple large shareholders on firm value. In two related works on family listed firms in Spain,
Sacrist´an-Navarro et al.(2011) andSacrist´an-Navarro et al.(2015) found that there is a premium
of 3.5% on a firm’s Return on Assets (ROA) when a it has a second blockholder.
Research on the role of institutional investors, mainly from developed capital markets, shows
a consistent positive effect of the presence of this type of investors on firm governance, efficiency
and performance. Moreover, it is expected that independent institutional owners (e.g.
invest-ment firms or banks) are more prone to behave as investors with high levels of control and to
act as management watchdogs because of their low monitoring costs and their capacity to collect
information and implement risk management protocols. Such investors have less natural
poten-tial for developing business relations with the corporations (Almazan et al.,2005). International
evidence shows that the premium for the presence of institutional ownership is 0.12 on the
To-bin’s Q ratio of a firm (Ferreira and Matos,2008). Recent studies for Latin America find there is a
premium of 0.08 (De-La-Hoz and Pombo,2015). These conceptual elements and findings support
the third hypothesis of this study:
H3: The presence of an independent second blockholder enhances firm performance.
2.3 The role of market liquidity and the blockholder voice mechanism
The approach under which blockholder contest acts as an internal governance mechanisms lies
on the assumption of deep and working financial markets. Within the Latin American business
environment, the issue of liquidity is of particular interest, as it is for other emerging markets,
since financial markets are not precisely widespread and on the contrary high concentration of
relatively few firms take part. Tracing back the inner logic of corporate governance and financial
performance, this relationship becomes meaningful in well-functioning and healthy stock
mar-kets. Disregarding the direction of causality, good corporate governance practices are supposed
to work in developed markets, in which firms adjust their behavior based on prices set by the
market.
Stock market development, liquidity and corporate behavior have been examined by several
authors. The existing evidence supports the argument that high liquidity provides the incentives
blockholders require to monitor firm performance either explicitly or implicitly. An early study
(Falkenstein,1996) suggested that investors (in particular mutual funds) prefer to invest in stocks
with high visibility and low transaction costs. One of the arguments used to explain this behavior
is that traders will choose stocks with high levels of visibility in the press and also those that have
been listed for a long time.
There is a well-grounded theoretical approach supporting the association between market
liq-uidity and firm performance. A liquid stock market provides an opportunity for non-shareholders
to become shareholders, encourages management compensation, reduces managerial opportunism
and promotes investment. The most important result ofFang et al.(2009) investigation of stock
liquidity and firm performance is that firms with liquid stocks perform better in the market. The
mechanism by which liquidity increases performance involves improved information on market
prices and managerial compensation. The hypothesis advanced by Fang et al. is particularly
powerful for industries with high levels of business uncertainty. Chung et al.(2010) find that
firms with better corporate governance typically display better financial performance. However,
causality runs from corporate governance to higher liquidity. This result suggests that firms
alle-viate trading issues (liquidity) by improving their corporate governance record. The mechanism
provided for such a dynamic is the improvement of financial and operational transparency, which
decreases information asymmetries between current and outside investors.
Roosenboom et al.(2014) works according to the hypothesis that stock liquidity weakens the
incentives of firms to monitor management. Here, a seldom traded stock with poor market
re-views faces lower returns once it becomes the subject of a takeover bid from another firm. The
threat of disciplinary trading is weaker in these cases, CEO turnover is higher, and markets reduce
firm value. Ultimately, market liquidity becomes a monitoring device that signals the underlying
relationship between ownership and performance. Liquidity empowers blockholders to employ
an exit strategy in response to careless management that threatens shareholders and market’s
view of the firm’s sustainability. Roosenboom et al.’s empirical results suggest that lower
liquid-ity is associated with withdrawal from takeover bids that would trigger negative announcements,
higher CEO turnover and lower premiums. There is no evidence of an association between lower
liquidity and increasing performance. These results are in line with the active role of intervention
by institutional investors in monitoring management when low liquidity hinders exit.
posi-tive effect of stock liquidity on blockholder governance. Liquidity and blockholder formation are
linked, the latter is favored by high liquidity, while the former increases the likelihood of
block-holders governing through voice and exit. Ultimately, in these circumstances, firm performance
increases.Chung et al.(2010) show that liquidity induces activism from blockholders, improving
the firm’s market performance. That is, regardless of how costly activism may be, these authors
find positive payoffs from activism when firms are recurrently traded.
Stock turnover in Latin America is structurally low. For instance, between 2000 and 2012
median stock turnover for all companies included in the S&P Latin America Index was below 20
basis points. Over the same period stock turnover in representative companies in the S&P 500
was 150 basis points. The aforementioned theoretical elements and figures for the structure of
financial markets in the region support the idea that the threat of blockholder exit and hostile
takeover are not credible strategies in the case of Latin America. This leads to the next working
hypothesis:
H4. Blockholder contestability, and the positive effect upon firm performance, becomes
feasi-ble in developing capital markets for firms with highly liquid stocks.
The following sections describes the data, outlines the empirical design of the study and
ana-lyze the econometric results.
3 Data
3.1 Sources and data characteristics
This study uses an unbalanced panel of more than 550 non-financial firms and 6,785 firm-year
data points from six Latin American countries (Argentina, Brazil, Chile, Colombia, M´exico and
Per ´u) for the period 1997 to 2011 (15 years). The main source of the dataset was Thomson’s
Datastream platform of financial information (Thomson Reuters Datastream,2012); Worldscope
platform was used to gather information on shareholding records. Other primary sources
com-prised databases of financial regulators in each country sampled, as well as the annual reports of
each firm. In particular, the shareholder signatures for Chile, Colombia Per ´u and Brazil were
ob-tained from the Economatica database and the respective local regulatory agencies.4 Ownership
information for Mexico and Argentina was also compiled using: i) U.S. Securities and Exchange
Commission form 20F for cross-listed companies and, ii) annual reports compiled by the Mexican
stock exchange. Table1(Panel A) summarizes the construction of the sample and its
representa-tiveness. The data extraction began with 4,809 firms. After removing non-active firms and those
for which no financial information or equity instruments were available, the number of firms fell
to 558. The sample is representative because the selected firms imply more than 40% of total
corporate market capitalization reported by the World Bank for each country (Panel B).
4Superintendencia de Valores y Seguros (Chile), Superintendencia del Mercado de Valores (Peru), Comissao de
Val-ores Mobiliarios (Brazil), Superintendencia Financiera (Colombia), Comisi ´on Nacional Bancaria y de ValVal-ores (Mexico), and Comisi ´on Nacional de Valores (Argentina).
Table1here.
Firms are gathered into three broad ownership brackets. Firms whose largest blockholder
owns more than 50% of the stocks, are named “Firms with absolute control”, while firms whose
largest blockholder holds fewer than 10% of stocks are termed “Widely held firms”. Those in
between, whose largest shareholder owns between 50% and 10% of the stocks are named “Firms
with multiple blockholders”. This breakdown fits well into the purpose of the study, reflecting
the highly concentrated ownership among first shareholders, as previously reported in Chong
and Lopez-de-Silanes(2005).
Table2summarizes the sample distribution according to the structure of blockholders. On
average, firms with multiple blockholders –that is, whose largest shareholder holds more than
10% and less than 50% of equity rights– make up about half the sample. In most of the remaining
firms, at least 50% of company equity is controlled by a single shareholder. Around 13 companies,
or 3% of the sample, are widely held. Colombia is the only country in which widely held firms
account for more than 5% of the sample. This ownership distribution is similar to that reported
byLaeven and Levinein their study of 1,657 European firms, confirming that multiple
blockhold-ers without absolute control and high ownblockhold-ership concentration are common across large capital
markets.
Table2here.
Table3shows the distribution within the sample of the first and second largest shareholders
by firm ownership structure and blockholder identity. Panel A shows the number of firm-year
observations. Two aspects should be mentioned in relation to these figures. First, local firms,
whether limited liability or incorporated, are the main source of large shareholders, followed by
firms owned by families or by financial institutions. The state is the last source of blockholders.
Second, these figures might seem to contradict the findings of previous studies on ownership
and control in Latin America, this is, that families are the first source of large and/or controlling
shareholders (Porta et al.,1998;Claessens et al.,2002;Faccio and Lang,2002). This phenomenon
may be explained by cases where families use (country specific) alternative legal structures that
are not observable in the information collected, resulting in an underestimation of the importance
of family ownership. For instance, families might constitute a trust fund managed by a financial
institution. Whenever this is the case, it is the trust fund the one recorded as the shareholder.
Panel B of Table3depicts the average ownership of the first and second blockholder by
iden-tity and firm ownership structure. There are a few features worth mentioning. First, ownership
participation of second blockholders is remarkably similar regardless of the nature of the
block-holders in question and of the firm’s ownership structure. For instance, for the sample of firms
with multiple blockholders the largest shareholder has around 29% of equity rights regardless of
is the case for the second largest shareholder, whose equity rights range from 14.5% to 18.5%.
Second, in firms with multiple blockholders there is scope for the second voting block to contest
the largest shareholder or to form a coalition in order to obtain absolute control. This prediction
is independent of whether the second blockholder is a family, foreign or a financial institution.
The ownership sum of both shareholder blocks is close to 50% in all cases. Eventually, all second
blockholders will become pivotal in the formation of a coalition.
Table3here.
The ownership structure of the firms with multiple blockholders is of particular interest. In
any attempt to characterize the ability of shareholders to form coalitions in cases where there
is no controlling shareholder, ownership distribution is highly relevant. Table4shows how, on
average, the first two shareholders account for 45% of ownership, and 54% if they engage with
the third blockholder. This holds true for all firms and for all types of blockholder (family,
lo-cal, foreign, financial institution or state) regardless of the blockholder with which the largest
shareholder wishes to engage in a coalition attempt.
Table4here.
3.2 Blockholder variables: presence, contestability, and dispersion
This study defines a blockholder as an investor with equity rights (direct votes) representing less
than 50% and more than 10% of ownership in a listed company. Thus, blockholder presence is a
dummy variable for firms fulfilling this shareholder characteristics.
Three measures for blockholder contestability are explored: i) the Shapley value of the top
three shareholders; ii) the ratio of the second shareholder to the first and iii) the ratio of the
second and third shareholders to the first.
The Shapley value, as a solution to a cooperative game, measures the probability for the largest
shareholder to form a coalition with either of the next two largest shareholders.5 By
constructu-ion, the Shapley value is one for all firms where the largest shareholder has more than 50% of the
firm’s equity rights, because it implies absolute shareholder control.
The second measure is the contestability index 2nd to 1st shareholder defined as the ratio of
the shares of the second blockholder to the shares of the largest one, that is:
Contest. index 2nd to 1st=Share 2nd shareholder
Share 1st shareholder (1)
The index approaches one when the direct votes of the top two blockholders are similar. The
closer to one means the second blockholder can contest the power of the first, therefore the
op-timal strategy is to engage in a coalition. The farthest from one means that the first shareholder
can advance in decision making without the second largest. This indicator grows in relevance for
5Leech(2002)’s construction of oceanic finite games to compute power indices is followed, this variable was obtained
from using the online application available athttp://homepages.warwick.ac.uk/˜ecaae/ssocean.html#data input.
firms without absolute control and for multiple blockholders where the largest block is able to
engage in a coalition with the second shareholder, achieving a controlling position.
The third measure, contestability index 2nd and 3rd to 1st shareholder, proxies the ability of
the second plus the third largest shareholders to challenge and monitor the largest shareholder.
It is defined as:
Contest. index 2nd and 3rd to 1st=Share 2nd shareholder+Share 3rd shareholder
Share 1st shareholder (2)
Dispersion estimates are defined using two Herfindahl-Hirschman Index (HHI) type measures.
First, the standardHHIis constructed using the first to fourth largest shareholders:
HHIconcentration=
∑4 i=1s
2 i
100 (3)
wheresiis the share ofithshareholder´s shares.
A higherHHIconcentration indicates the presence of a large shareholder, and his inherited
control; this is an obvious result for the segment of firms with a controlling shareholder, about
50% of the sample described above. For the 45% of the sample where non-controlling large
share-holders have been identifiedtheHHIconcentration will always be lower than for firms with
con-trolling shareholders.
The second dispersion estimate highlights the difference between subsequent shareholders in
order to measure their dispersion:
HHIdifferences=
∑4 i=1(S
2 i −S2−i)
100 (4)
wheresiis the share ofithshareholder´s shares, andS−iother shareholder different fromi.
TheHHIdifference is a measure of shareholder distribution. The higher the index the larger
the distance (in shares) between shareholders. In conceptual terms theHHIdifferences reflect the
inequality in ownership in the same way that a Gini coefficient would in income distribution.
3.3 Firm performance and financial control variables
In line with existing empirical research on firm value and multiple blockholder ownership (Claessens
et al.,2002;Faccio and Lang,2002;Mishra,2011;Attig et al.,2009), several variables were
consid-ered to measure firm performance and financial characteristics. Tobin’s Q andROAwere used to
measure firm performance. The former is the prefered measure of firm value, and was calculated
using the method proposed byBlack et al.(2006) who define the variable as the ratio between
mar-ket value and the book value of assets. Marmar-ket value is the sum of the marmar-ket value of common
stock and preferred stocks (if any), plus the book value of long-term liability and minority
inter-est. ROAis the net income to total assets ratio.ROAis one proxy for firm performance, especially
when no market data is available; it is useful because, unlike alternative financial performance
indicators such as Return on Equity (ROE), it is independent of a firm’s capital structure.6
6All results presented in the paper are those from using Tobin’s Q, estimation results usingROAare not qualitatively
Several financial variables are included in the econometric estimation, with the purpose of
capturing the behavior and characteristics of firms appropriately, and particularly those related to
blockholder structure. The natural logarithm of assets (deflated using the Consumer Price Index
(CPI)) is used as a proxy of firm size. It is expected that a negative coefficient will be observed in
the estimation results and that large and long-established firms will demonstrate slower market
dynamics than small and young companies. This variable can also capture a moral hazard effect
easily observable in small firms, which are harder for external investors to monitor and where, in
the absence of a watchdog, reckless management can divert resources.
Wedge is measured as the ratio between Shapley value and the cash flow rights of the largest
shareholder(S1). FollowingGuedes and Loureiro(2006) this measure is used as an approach to
identify shareholders voting rights in cases where data on direct ownership is available.
Sales growth is measured as the annual growth rate of operating income. This variable is
appropriate for measuring investment opportunities. Firms with better growth opportunities are
expected to grow faster. Consequently, a positive relationship is expected between this variable
and the value and performance measures.
Leverage is measured as the ratio of the book value of total liabilities to total assets. A high
leverage indicates a scenario of financial stress affecting the firm, and challenges to its managerial
decisions. A low value indicates financial leeway. Existing empirical evidence suggests that
lever-age may have either a positive disciplinary effect on the free use of cash flow by manlever-agement, or
a negative one if it increases the probability of bankruptcy or of a firm’s aggregate financial risk.
Stock beta is the standard measure of systemic risk for a firm’s stock with respect to the
mar-ket; it measures shares that have been actively traded in the stock market for more than 180 days
in a given year. The Free Cash Flow (FCF) to equity ratio is defined as EBITDA minus expenditure
on tax and interest to total firm equity. This is an indicator of a firm’s short term liquidity.
Tangibility is measured as the ratio between plant, property and equipment and total assets.
Lower asset tangibility signals that a firm’s cash flow is presumed to be generated by intangibles
(know-how, branding, etc.), implying high firm market value. The expected relationship with the
dependent variable is negative.
3.4 Country specific institutional and macroeconomic variables
Country macroeconomic and institutional variables are included in the empirical baseline
equa-tion. Latin American countries share the same legal origin (French) and are therefore classified in
the empirical literature on corporate governance as having similar investor protection standards.
The institutional variables mainly deal with the existing ability within a country to undertake
business initiatives, which ultimately have an effect on the market value of firms. Most of the
variables fulfill the purpose of representing the power of the financial market to promote private
enterprise.
The Emerging Market Bond Index (EMBI) primarily reflects the degree of trust felt by
inter-national investors in a country’s economic performance. Bonds issued by local firms in world
markets will be in demand as long as the firms and the country show future positive prospects.
Domestic credit corresponds to the indebtedness of the private sector within a country; it refers
also to any financial resources that may be provided, such as loans, the purchase of non-equity
securities, trade credits and other accounts that establish a claim for repayment.
Legal rights and business and financial freedom deal with the narrower characteristics of
countries that help foster private enterprise.
Legal rights, business freedom, and financial freedom deal with narrower characteristics of
the countries in fostering private enterprise. Specifically, legal rights refers to the ability to
accu-mulate private property and wealth; it is understood to be a central motivating force for workers
and investors in a market economy. The recognition of private property rights, with sufficient
rule of law to protect them, is a vital feature of a fully functioning market economy. Secure
prop-erty rights give citizens the confidence to undertake entrepreneurial activity, save their earnings
and make long-term plans in the confidence that their income, savings, and property (both real
and intellectual) are safe from unfair expropriation or theft. Business freedom concerns the
indi-vidual’s right to establish and run an enterprise without interference from the state. Burdensome
and redundant regulations are the most common barriers to the free conduct of entrepreneurial
activity. Financial freedom seeks to guarantee a transparent and open financial system ensuring
fair access to finance and the promotion of entrepreneurship. An open banking environment
en-courages competition to provide the most efficient financial intermediation between households
and firms and between investors and entrepreneurs.7 All institutional variables, except a
coun-try’sEMBI, are expressed with respect to the corresponding variable for the United States.
The set of macroeconomic variables is: countryGDPgrowth (per capita), annual inflation rate
(CPI) and the corporate market capitalization to Gross Domestic Product (GDP) ratio. These
vari-ables were chosen as they characterize even further the current state of each economy. Table 5
presents the summary of the statistics for firm performance discussed above along with the
con-trol variables that were included in the econometric baseline estimating equation.
Table5here.
4 Econometric analysis
Three econometric equations were estimated with the purpose of identifying the predicted
as-sociations of blockholder interactions on firm market value. The three equations are consistent
with the previous treatment of blockholder presence, contestability and dispersion. In all three,
the effect of liquidity and of the identity of the shareholder are included as independent variables
and interactions (level and slope).
The equation used to estimate the presence effect is:
Tobin’s Qit=β0+β1Presenceit+β2Liquidityit+β3Identityl
+β4Presenceit×Liquidityit
+β5Presenceit×Identityl
+β6Liquidityit×Identityl
+β7Presenceit×Liquidityit×Identityl
+β8kX1it+β9kX2j+ϵit (5)
The equations used to estimate the contestability effect is:
Tobin’s Qit=β0+β1Contestabilityit+β2Liquidityit+β3Identityl
+β4Contestabilityit×Liquidityit
+β5Contestabilityit×Identityl
+β6Liquidityit×Identityl
+β7Contestabilityit×Liquidityit×Identityl
+β8kX1it+β9kX2j+ϵit (6)
The equations used to estimate the dispersion effect is:
Tobin’s Qit=β0+β1Dispersionit+β2Liquidityit+β3Identityl
+β4Dispersionit×Liquidityit
+β5Dispersionit×Identityl
+β6Liquidityit×Identityl
+β7Dispersionit×Liquidityit×Identityl
+β8kX1it+β9kX2j+ϵit (7)
where:β3,β5,β6andβ7are a vector of coefficients of lengthl−1 = 4corresponding to thel= 5
identity values: 1. family, 2. local, 3. foreign, 4. financial institution and 5. state (family is used
as the base group); and the interaction withLiquidityand the variables of interest.X1is the set of
control firm variables andX2is the set of country control variables.iindexes firms andttime.
Liquidity is a dummy variable for those firms in the top 75% of the most traded stocks by
country while Identity is a dummy variable for the identity of the second largest blockholder.
The coefficients of interest are those associated to presence, contestability and dispersion, which
shows the association between the different blockholder interests and firm market value.
Fur-thermore, what matters here is the marginal effect associated with the corresponding interaction
whenever they are “active”, in the case of liquidity : β1, β4, β5, β7wheneverLiquidityandIdentity
are not zero. The interactions are included in the equation in such a way that they modify the
constant and slope in order to fully capture the effect of the firm’s liquidity and of the identity of
the shareholder.
The econometric results presented below are the result of an exploration of a simple equation
where Tobin’s Q is regressed against the variable of interest, adding the firm and country control
variables discussed above in batches. This process has proven useful when coefficients produce
meaningful results following the inclusion of control variables and when the estimation method
is improved by using Fixed Effects (FE) rather than Ordinary Least Squares (OLS). Such strategies
help to overcome the two basic estimator biases suspected to be present in the econometric results:
omitted and unobserved variables.8
Given the longitudinal structure of the data, the econometric estimation is theFE
transforma-tion for panel data structure, because the Hausman specificatransforma-tion test rejected the null of Random
Effects (RE) specification as the true model and because of the need to control for unobserved
fixed variables that are inherent in the estimating equation.
4.1 Econometric results. Liquidity marginal effects
This section reports the main findings of the study. The first point worth highlighting is that
the set of interactions used to group highly liquid stocks and identity in the baseline equations
become pivotal in the findings associated to the hypotheses of the paper. Therefore, the analysis
does not focus on the role of an average firm, leading the discussion instead toward the role of
high market liquidity and blockholder identity as drivers of firm value.
Table6shows the marginal effects of blockholder presence, contestability and dispersion on
firm Tobin’s Q, following the econometric specification discussed above. The regression
coeffi-cients of the firm financial controls, country institutional and macro variables are not reported.9
For each variable of interest, the table shows the marginal effects corresponding to three
specifica-tions. First, variable of interest without interacspecifica-tions. Second, variable of interest plus interaction
with high liquidity. Third, variable of interest plus interaction with high liquidity after including
identity interaction.
Several results are worth highlighting. First, blockholder presence implies a premium on firm
value of between 0.13 to 0.17 units on Tobin’s Q (columns 2 and 3) after liquidity and identity
are considered. Regression coefficients are significant at 5%. The positive effect suggests that the
mere presence of blockholders increases value to shareholders even in cases of absolute control
(i.e. first blockholder with ownership greater than 50%). This effect is greater than the reported
byLaeven and Levine(2008) for European firms, whose results show that there is a premium
on Tobin’s Q of 3.7 units of the control rights of the largest shareholder for firms that only have
multiple blockholders. The above results validate the first working hypothesis, which states that
blockholder presence is value enhancing.
Secondly, with regard to the contestability variables (Shapley value, and the Contestability
In-dices) the relationship is negative. The Shapley value marginal effects on firm value (columns 4 to
6) are all negative, as expected. That is, as the probability of a controlling coalition being formed
between the largest block and subsequent blockholders increases, firm value decreases. When
re-gressions include liquidity and second blockholder interactions, the marginal effect ranges from
-0.14 to -0.34. This finding is particularly important since were the probability of forming a
con-trolling coalition to rise 10 decimal points (i.e. from 0.4 to 0.5) Tobins’ Q would decrease by 0.034
units. In value terms, if a firm shows a Tobin’s Q ratio of 1 and corporate capitalization is 10
million dollars, the rent diversion of a potential coalition will reduce asset value by 340,000
dol-lars. This result agrees with the tendency reported byMaury and Pajuste(2005) for 612 Finnish
firms, of a -0.20 regression coefficient, and by Guti´errez and Pombo(2009) who report
regres-sion coefficients of -0.30 and -0.58 for medium and highly liquid stocks for 140 Colombian firms.
These results provide powerful validation of our second hypothesis, which proposed a negative
effect on firm value due to potential tunneling and rent diversion by the blockholders’ controlling
coalition.
Given that the Contestability Indices are inversely related to the Shapley value, the former
dis-plays a positive association with firm value. They also capture the potential control exerted either
by the second or the next two blockholders on the largest one. The marginal effect ranges from
0.13 to 0.17 (columns 7 to 12). For instance, if the contestability index of the second blockholder
changes by one standard deviation (0.32) then Tobin’s Q increases by 5.4 units when regressions
are controlled by the stock liquidity and type of blockholder dummies.
The third set of results corresponds to dispersion measures. The regression coefficients are
presented in columns 13 to 18. TheHHIcaptures the dispersion of cash flow rights of blockholders.
The regression coefficients are (as expected) negatively related with firm Tobin’s Q indicating that
as dispersion increases there is more room for tunneling by the controlling shareholders. Their
size effect lies between -0.39 (column 17) and -0.44 (column 18), suggesting that a change of one
standard deviation on blockholders dispersion (0.26) will reduce Tobin’s Q by an average of 0.11
units. This result reinforces the one derived using the Shapley value. In fact the lower the control
power of the second or third blockholder the greater the rent capture by the controlling voting
block. Regression coefficients in all cases are significant at 5% when regressions are controlled by
stock liquidity and second blockholder-type dummies.
The last set of results supports the third and fourth working hypotheses, in the sense that the
second blockholder is a key element in improving the internal governance of firms, particularly in
emerging markets such as Latin America. The consequence for firms with illiquid, seldom traded
stocks, probably retained with the sole purpose of complying with stock exchange rules, is that
the absence of such an internal corporate governance mechanism, i.e., blockholder
contestability-increases firm agency costs and deteriorates investor protection.
Table6here.
4.2 Econometric results. Marginal effects of second blockholder identity
The results presented in the previous section showed how the second blockholder is important
to firm value and becomes a key player exerting direct monitoring on the largest shareholder or
possibly resorting to the exit mechanism (voice) in order to discipline firm management for highly
liquid stocks. It becomes crucial, therefore, to distinguish the identity of the second blockholder
if firm value is to be maximized. This section is devoted to disentangling whether a particular
kind of blockholder is more effective than others in enforcing managerial control.
As described in the data section, the second blockholder is sub-divided according to their
main composition or identity as family, local, foreign owned, financial institution or state. In the
second set of results the ownership effect by type of second blockholder is disaggregated. Figure
1summarizes the marginal effect of each variable of interest, disentangled by the identity of the
second largest shareholder.10
Figure1here.
The principal results may be summarized as follows. First, the positive and significant effect
of second blockholder identity on firm value, for high liquid stock firms, is observed when they
are financial firms, foreign investors or the state. The extent of the marginal effects of these types
of blockholders is greater than that of family and local firms.
Second, after classifying by identity the findings show a substantial differential effect. The
change between the mere fact of there being a second large shareholder and it being of a value
enhancing kind, such as a financial firm, is not trivial. In this case the corresponding marginal
effect changes from 0.17 to 0.41, or to 0.52 if the state is the second voting block. Similar results are
observed for the contestability indices. The capacity of the second blockholder to contest control
with the first is only significant for financial firms; the marginal effect of contestability highlights
this role, increasing from 0.16 to 0.39.
Third, controlling coalitions will harm firm performance considerably more when a financial
firm or the state is involved in the coalition. In these cases the marginal effect on Tobin’s Q
decreases from an average of -0.34 to -0.59 and -0.75, correspondingly.
Fourth, the role of the state as second blockholder deserves special attention. Many firms
in the sample were formerly state owned enterprises, some belonging to the power and energy
sector, that had been privatized during the 1990s. In terms of market capitalization and size,
pri-vatized companies might be categorized as belonging to the subgroup of high stock turnover. In
the shallow Latin American stock markets these firms have become major new players. The role
of the state as second blockholder within other private firms is positive according to our findings.
However, this set of results should be taken with care, given the small number of observations. In
the case of Chile, for instance, the principal (state owned) development bank is an active
share-holder in mining and public utilities companies.
The findings presented above highlight the importance of financial and foreign firms as
sec-ond blockholders, reinforcing the positive effect on firm performance, in contrast to family, local
and foreign ownership. These results are in line with the findings of the institutional investors
and foreign investment literature. In general terms, it is expected that these two investor types
will behave independently, providing better governance standards. This outcome supports our
third hypothesis, which predicts that the presence of an independent second blockholder
en-hances firm value.
4.3 Endogeneity checks
This section summarizes the endogeneity analysis conducted on the results that have just been
discussed. The purpose is to determine wether the results hold to misspecifications tests due to
a potential endogeneity effect embedded in the estimation results. The empirical literature on
corporate governance stresses the potential endogeneity between corporate governance
funda-mentals and firm managerial choices, such as firm value and ownership (Renders and
Gaere-mynck,2006;Bascle,2008;Larcker and Rusticus,2010;Roberts and Whited,2013;Edmans,2013).
To address these issues, an instrumental variable estimation for fixed effects regressions was
con-ducted.
The likely endogeneity issue in the econometric estimation is simultaneity. The possibility
that omitted variables and sample selection phenomena act as sources of endogeneity is not
ex-amined here. Regarding omitted variables, a large number of firm and country-specific variables
were taken into consideration in order to explain performance. The selected variables had solid
theoretical foundations and were statistically valid. They were therefore capable of providing
information on the financial performance of the firms examined. In terms of the sample selection
problem, the description of the database in section 3shows the comprehensive structure of the
data at firm level. Therefore, no bias should be anticipated when it comes to estimating results.
To address potential endogeneity consequences in the estimation results, an Instrumental
Vari-ables (IV) estimation was undertaken. Three variables were used as instruments for the
block-holder variables: (1) blockblock-holder definition lagged one period; (2) the free cash flow standard
error for the last three periods; and (3) the operating income standard error for the last three
pe-riods. Each variable was used both individually and jointly in the IVestimation, using robust
standard errors and serial correlation correction on the estimates.
The rationale for using the blockholder definition lagged one period as an instrument is that
lagged variables are an appropriate alternative for an instrumental variable estimation because
they are closely related to the current value of the potential endogenous variable and do not
necessarily explain the dependent variable in the second stage estimation. In the current setting
this option requires some degree of variability between the blockholder definition in periodtand
periodt−1to assure the logic of instrument validity.
Following the procedure ofHimmelberg et al.(1999), free cash flow volatility and operating
income volatility are also used as instruments. These authors state that one source of ownership
endogeneity is investor risk aversion. Cash flow and operating income volatility are proxies for
firm operating risk. Thus, all other things being equal, the higher a firm’s cash flow volatility,
the less likely it is that multiple blockholder ownership will be present. In other words, thanks
to their ability to signal the estate of the company to potential investors, these variables have the
ability to isolate the potential endogeneity between ownership structure and performance. Such
volatility informs the investor decisions concerning whether or not to increase their ownership.
At the same time, firm market value will show lower levels of response to such volatility.
Table7reports theIVregressions results for joint instruments. The regression equations
repli-cate the estimates of blockholder presence, contestability and dispersion with interactions (that
is, equations5to7). The focus is on the full estimation including high stock turnover firms and
taking into account the identity of the second blockholder. In this case the table displays the full
regressions, including the set of firm-specific financial controls, country institutional and macro
variables.
The principal result of this exploration of endogeneity is that the set of tests used to validate
theIVanalysis favor the original estimation and suggest that theIVestimation results should not
be taken as definitive. To begin with, there is no statistical evidence of endogeneity. The tests
listed at the bottom of the table accept the null hypothesis that the explanatory variables are not
endogenous. The weakest case is the one corresponding to presence of blockholders, which rejects
the null hypothesis at 10% significance; the remaining estimations reject the case of endogeneity
at high levels of statistical significance. From this finding the remaining tests comply with the
standard procedure when estimatingIVregressions. The weak instruments test is also rejected
(high values of the statistic). Therefore, the set of instruments become a valid set of variables
to uncover an endogenous process within the estimation. The under-identification test is also
rejected, with zero probability on the null hypothesis of under-identification. Finally, the valid
instrument test (Hansen J) is accepted, since we have one candidate variable for endogeneity and
three exogenous instruments (as tested above).
5 Conclusions
This paper examines the relationship between blockholders (that is, largest shareholders
control-ling between 50% and 10% of a firm’s stocks as opposed to majority shareholders with more
than 50%) and firm value. Using different measures of presence, contestability and dispersion it
finds that blockholders are positively associated with market firm value. However, this relation
is not homogeneous and is only observed in highly traded stocks (those in the top quartile of the
distribution). This result contributes to the corporate governance literature by highlighting the
important role played by deeper financial systems as mechanisms of discipline, particularly in
developing countries.
In addition, the paper examines the identity of the second largest blockholders and finds that
it is among firms in which they are financial institutions or foreign companies that the result
holds most strongly. This is not to say that family, local and state second blockholders are not
important, but it is financial institutions and foreign interests that exert the strongest and most
undeniable effects on firm performance.
Taken as a whole, the results highlight the relevance of financial markets and the need to
enlarge stock markets in order to benefit from the mechanisms that result from such processes
and to bring discipline to the classical principal-agent relationship. Most importantly, the paper
shows how it is not just any kind of large blockholder that is capable of exerting the discipline
mechanism, but that for Latin America and perhaps for other economies and regions it is financial
and foreign second large shareholders that are capable of making the difference.
Tables and figures
Table 1.Sample construction and representativeness Panel A: Construction
Reported Datastream Mnemonics 4,809
Non-active firms (Removed) 1,552
Firms with non-equity instruments (Removed) 1,154
Banks and financial firms (Removed) 937
Firms with insufficient ownership information (Removed) 604
Final 558
Source: Author’s estimation.
Panel B: Representativeness
Assets (Tot.) /GDP Corp. Value /GDP Corp. Value /
Market Cap.
Argentina 0.170 0.144 0.705
Brazil 0.062 0.048 0.091
Chile 1.132 0.778 0.777
Colombia 0.248 0.187 0.482
M´exico 0.115 0.092 0.326
Peru 0.071 0.091 0.211
Note: Reported ratios correspond to the average ratio between 2000 and 2011, derived from the sample.
Table 2.Ownership structure. Country
Blockholder type Latin Am. Argentina Brazil Chile Colombia Mexico Peru
Control 1st. shareholder 3,383 335 853 604 184 653 754
Multiple blockholders 3,299 114 1,206 643 289 489 558
Widely held 193 0 57 17 66 17 36
Note: Number of firms figures correspond to firm year data points. Source: Author’s estimation.
Table 3.Ownership structure. Type of second shareholder Panel A
Number of firms
Shareholder Blockholder type Family Local Foreign Financial State
1st
Control 1st. shareholder 585 1,188 702 605 142
Multiple blockholders 696 1,030 1,086 266 79
Widely held 92 47 34 8 0
2nd
Control 1st. shareholder 478 664 1,021 296 119
Multiple blockholders 539 836 1,140 317 50
Widely held 95 40 28 16 1
Panel B
Ownership
Shareholder Blockholder type Family Local Foreign Financial State
1st
Control 1st. shareholder 0.694 0.697 0.678 0.715 0.721
Multiple blockholders 0.274 0.322 0.285 0.317 0.267
Widely held 0.076 0.082 0.083 0.085
2nd
Control 1st. shareholder 0.111 0.164 0.105 0.217 0.147
Multiple blockholders 0.146 0.162 0.154 0.185 0.185
Widely held 0.060 0.070 0.066 0.075 0.092
Note: The table shows the number of firms and ownership belonging to a specific blockholder identity and whether they are first or second largest shareholder, and if they determine the ownership struc-ture among controlling 1st shareholder, multiple blockholders or widely held. For example, 585 firms have as first shareholder a family firm that makes the firm belong to one of controlling shareholder, correspondingly this group of firms has an average ownership of 69%.
Source: Author’s estimation.
Table 4.Ownership structure. Blockholder firm
Shareholder All All (Max) All (Min) All (SD) Family Local Foreign Financial State
1 0.298 0.499 0.101 0.118 0.279 0.295 0.300 0.316 0.341
2 0.156 0.499 0.003 0.091 0.146 0.162 0.154 0.185 0.185
3 0.086 0.272 0.000 0.053 0.079 0.090 0.086 0.102 0.066
4 0.055 0.244 0.000 0.041 0.055 0.059 0.057 0.058 0.042
Note: The table shows the ownership structure from the first to the fourth largest shareholder for all the sample and
by ownership identity.
Source: Author’s estimation.
Table 5.Summary statistics
N Min Max Mean SD
Performance
Tobin’s Q 6,308 0.0800 7.030 1.221 0.727
ROA 6,373 -1.358 2.274 0.119 0.125
ROE 6,365 -46.39 44.50 0.286 1.395
Presence
Blockholder presence 6,682 0 1 0.494 0.500
Contestability
Shapley 6,679 0 1 0.703 0.341
Contest. index 2nd to 1st 6,681 0 1 0.381 0.315
Contest. index 2nd and 3rd to 1st 6,681 0 2 0.581 0.508
Dispersion
H.I. Con. 6,678 0.0126 1 0.348 0.256
H.I. Diff. 6,678 0 1 0.234 0.264
Finance
Size 6,453 -0.258 12.65 5.953 1.854
Wedge 6,679 0 5.556 1.394 0.331
Sales (Growth) 5,993 -24.32 23.95 0.0220 2.202
Leverage 6,453 0.000863 1.437 0.475 0.212
Beta 4,892 1.80e-06 7.736 0.100 0.399
Free cash flow 6,265 -30.27 31.96 0.0955 0.953
Tangibility 6,448 6.72e-06 0.967 0.411 0.246
Institutional
EMBI 6,682 64.85 5,742 482.6 684.7
Domestic credit (w.r.t U.S.) 6,682 0.0548 0.474 0.199 0.110
Legal rights (w.r.t U.S.) 4,086 0.333 0.778 0.490 0.154
Buss. freedom (w.r.t U.S.) 6,682 0.574 1 0.764 0.114
Fin. freedom (w.r.t U.S.) 6,682 0.333 1 0.716 0.156
Macroeconomy
Inflation (CPI) 6,682 -1.170 31.76 6.854 4.303
Market cap. / GDP 6,682 9.570 157.0 53.12 33.29
GDP growth (pc) 6,682 -11.73 8.660 2.624 3.099
Note: The table shows summary statistics for the explanatory variables of interest: presence, contestability, dispersion; and the remaining control variables: finance, in-stitutional and macroeconomic variables.
T able 6. Mar ginal ef fects Pr esence Shapley Contestability 2 to 1 Contestability 2 and 3 to 1 HI concentration HI dif fer ences Coeff . × P 75 = 1 × P 75 = 1 × T ype Coeff . × P 75 = 1 × P 75 = 1 × T ype Coeff . × P 75 = 1 × P 75 = 1 × T ype Coeff . × P 75 = 1 × P 75 = 1 × T ype Coeff . × P 75 = 1 × P 75 = 1 × T ype Coeff . × P 75 = 1 × P 75 = 1 × T ype (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) Pr esence
Blockholder presence
