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

Luis H. Gutiérrez, Carlos Pombo

Research output: Contribution to journalArticle

25 Citations (Scopus)

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. © 2008 Elsevier Inc. All rights reserved.
Original languageEnglish (US)
Pages (from-to)112-139
Number of pages28
JournalJournal of Economics and Business
DOIs
StatePublished - Mar 1 2009

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Blockholders
Colombia
Corporate control
Contestability
Corporate ownership
Ownership and control
Emerging markets
Firm value
Voting
Diversion
Cash flow rights
Large shareholders
Return on equity
Substitute
Owners
Rent
Equity
Monitoring
Stock market
Voting rights

Cite this

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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. {\circledC} 2008 Elsevier Inc. All rights reserved.",
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Corporate ownership and control contestability in emerging markets: The case of Colombia. / Gutiérrez, Luis H.; Pombo, Carlos.

In: Journal of Economics and Business, 01.03.2009, p. 112-139.

Research output: Contribution to journalArticle

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