CORPORATE GOVERNANCE: CHALLENGES FOR LATIN AMERICA *

Abstract

Corporate Governance relates to mechanisms through which providers of resources to the firm get their share of resources in return. Adequate governance practices help develop capital markets and assist market forces in attaining efficient contracts. Convincing evidence exists that well developed capital markets have an important impact on economic performance, growth and productivity. Our motivation for studying the corporate governance challenges faced by Latin America partly arises from a conviction that academic research on these issues can have a direct and substantial positive social impact. In addition, there is much to be learned from the international evidence. The background articles included in the first volume of the special issue cover several subjects including the importance of the law for stakeholder protection in Latin America; the relationship between the development of particular industries and corporate governance systems; international evidence regarding the role of institutional investors in corporate governance; and the influence of external shocks on the way governance systems develop. We conclude that legal reforms may be necessary; that there is no particular governance system that is necessarily the best for all countries and that these systems have to be analyzed in light of each country’s history and development. Also, institutional investors may play an important role in Latin American corporate governance, particularly ADR holders and pension funds. The second volume of the special issue includes five case studies: business groups, property and control structures in Chile, Brazil, Mexico and East Asia. Also, the role of pension funds in Chilean corporate governance is analyzed. We conclude that significant control and ownership concentration exists in all of the cases studied, beyond the minimum needed for control; that the role of banks differs substantially in the different cases; and that group structures are diverse, being notably simpler in Chile. Finally, in this particular article some of the recently proposed legal reforms in Chile are analyzed, especially those related with mandatory tender offer requirements.

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