Papers by Fernando Lefort
World Bank Publications - Books, 2007
This book holds that the crucial failure of corporate governance is the expropriation of outside ... more This book holds that the crucial failure of corporate governance is the expropriation of outside investors, be they shareholders or creditors, by those who are in control of firms. The problem of expropriation, also known as tunneling, often takes on enormous proportions. Billions of dollars of wealth are siphoned away from outside investors to controlling shareholders and their private company allies. The expropriation prevents investors from devoting funds in the corporate sector, thus leading to low valuations of corporate assets, stunted capital markets, and slowed economic growth. Low valuations and underdeveloped financial markets are only two of the symptoms of investor expropriation. Other symptoms include concentrated corporate ownership, large spreads between cash flow ownership and the voting rights of dominant shareholders, pyramids, and low dividend payments. When financial markets exhibit these symptoms, the likely underlying problem is investor expropriation. The essays collected in this volume put together a compelling picture showing that many of the symptoms of investor expropriation and poor corporate governance are present in Latin America. The evidence is loud and clear in every chapter of this book. But there are also benefits to collecting this detailed proof. The evidence suggests recipes for improvement as well. The message of this book is as unambiguous as is its analysis: a critical goal in the agenda of financial reform in Latin America must be improvement in corporate governance through legal reform.
... by Fernando Diaz, Fernando Lefort and Marco Morales% Abstract 1 Introduction ... Universidad ... more ... by Fernando Diaz, Fernando Lefort and Marco Morales% Abstract 1 Introduction ... Universidad Diego Portales. Correspondencia: [email protected]; [email protected];[email protected] research has been partially funded by the Bicentennial Program ...
RePEc: Research Papers in Economics, Nov 1, 2011
In this paper, we develop a simple two period model of the holding company-subsidiary relationshi... more In this paper, we develop a simple two period model of the holding company-subsidiary relationship that analyzes the option faced by controlling shareholders to optimally bailout subsidiary companies using the holding company’s financial resources. This behavior is rational under several incentive structures originated in the presence of group externalities, synergies and private benefits of control. The results of our model are consistent with recent empirical evidence of holding company discounts, and with the existence of diffuse limits among the affiliated firms of a group. Our results allow us to interpret the presence of holding company discounts as evidence that bailing-out may arise for reasons other, and less conflictive, than the perpetuation of tunneling benefits by the controlling shareholder, such as the perpetuation of benefits of reputation and group synergies.
Journal of Economic Growth, Sep 1, 1996
This paper provides an overview of corporate governance practices in Latin American countries, su... more This paper provides an overview of corporate governance practices in Latin American countries, surveying the available empirical literature, reviewing the reports on the subject prepared by multinational organizations, and providing new data for ownership and control structures of companies in different Latin American economies. Like in other emerging economies corporate governance in Latin America is conditioned by the high level of ownership concentration and the profusion of industrial and financial conglomerates controlling several companies. This corporate structure generates an agency problem between controlling and minority shareholders, that is exacerbated when controlling shareholders hold a disproportionate amount of voting power in relation to their cash flow rights. New empirical evidence indicates that Latin American markets penalize excessive separation between control and cash flow rights held by controlling shareholders. In addition, legislation, regulations and the ...
hen we study domestic financial markets, the first question we must ask is how to define them. Ca... more hen we study domestic financial markets, the first question we must ask is how to define them. Capital markets are usually defined as those in which capital funds (debt and equity) are traded, including primary (which itself includes private placements) and secondary (possibly organized) markets. The definition of financial markets also includes here the so-called money markets, or short-term liquidity markets. The question is thus what “domestic” or “local” means. In the context of multinational financial institutions and productive firms, being able to identify who owns the firms and who provides the funding and classifying them into “local” or “foreign” becomes complicated. The distinction between local and international financial markets becomes blurred even further when we consider that firms in a country can issue securities abroad and when international investors can buy shares issued by local firms, either directly or via American depository receipts (ADR). We thus adopt an ...
1Indexation policies and practices are common in many markets and economies. In most cases, price... more 1Indexation policies and practices are common in many markets and economies. In most cases, price adjustment mechanisms arise in private contracts as a consequence of high and pervasive infla-tion. Sometimes governments also play an important role in pro-moting the use of indexation in their issues of public debt, taxation systems, public tariff settings, and other institutional arrangements. Although practices that can generally be classified as index-ation are widespread in most modern economies, this topic re-mains highly controversial. On the one hand, from a microeconomic point of view, it is clear that indexation facilitates economic ar-rangements and contracts between private agents under high and even under moderate inflation. In particular, indexation allows the system of relative prices to survive large inflation shocks. Wage and financial indexation are clear examples of arrangements that accomplish this purpose. Wage indexation substitutes for the need for frequent reneg...
There are two sources of inconsistency inexisting cross-country empirical work on growth: correla... more There are two sources of inconsistency inexisting cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate avariety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10 percent per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2 percent. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior reults, we reject both the standard and the augmented version of the model.
Corporate Governance relates to mechanisms through which providers of resources to the firm get t... more 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...
This paper studies a congestion effect operating in most search processes in which applicants are... more This paper studies a congestion effect operating in most search processes in which applicants are allowed to fill multiple applications. Increases in the number of one agent applicant decrease the probability faced by other searchers of a successful match, generating the congestion effect, The presence of this externality causes market equilibrium to be sub optimal. Compared to the cooperative equilibrium, the Nash equilibrium features too many applications per individual, and too low reservation wage. The macroeconomic implications of this suboptimality are, in general, a higher unemployment rate than the one a social planner would have gotten. The paper also provides evidence that this congestion effect operates in the U.S. labor market. Using the Employment Opportunity Pilot Projects household survey, I find after controlling for endogeneity, that an increase in the average number of applications per worker decreases the effectiveness of the individual search.
El Trimestre Económico, 2003
In this paper we analyze the problem faced by a firm who is exposed to long-term exchange rate ri... more In this paper we analyze the problem faced by a firm who is exposed to long-term exchange rate risk, having no access to long-term forward contracts that would allow hedging the exchange risk perfectly. We analyze how much of the long-term exchange rate risk faced by the firm can be eliminated using short-term maturity contracts, identifying under which conditions the use of short-term maturity contracts would allow for perfect hedging. The use of short-term forward contracts to hedge against long-term exposure forces the firms, as times evolves, to roll the hedge over as old forward contracts mature and new ones are listed, giving rise to some degree of exposition. We develop strategies to increase the hedging provided by short-term futures and forward contracts, exploring the characterization of an optimal hedging strategy, considering that there are several short-term forward contracts with different maturities coexisting. We show that up to 98.39% of the total exchange rate risk...
Using a variance decomposition analysis the empirical literature on strategic management has dete... more Using a variance decomposition analysis the empirical literature on strategic management has determined the percentages of total rates of return’s variance due to corporation, market and business-unit effects. However, we still do not know what specific characteristics of corporations and markets cause the observed persistent differences in the returns of business units. In summary, the analysis of variance puts names to our ignorance. The main purpose of this paper is to show that the variance decomposition analysis is limited in its ability to explain the determinants of business unit performance. Our results show that the relative importance of corporation, industry and business unit effects change depending upon the estimation procedure and the model specification used. In particular, we find that part of the business unit effect may, in fact, be related to industry characteristics. We also show that firm diversification and market concentration tend to improve business unit per...
We present a synthesis of the major political and economic events that have influenced the develo... more We present a synthesis of the major political and economic events that have influenced the development of laws and capital markets in Chile, and their impact on the evolution of Chilean conglomerates through time. We find that laws and regulations in Chile have been extremely «path dependent», corresponding in most cases to reactions to crises or major events, and argue that these events have persistently shaped corporate governance systems in Chile. We identify the episodes of financial repression and credit rationing, the privatization rounds, the debt crisis of the eighties and the pension fund reform, as the most important events conditioning the development of corporate governance systems in Chile. Since most of these phenomena have also occurred in other countries in the region, this study provides some lessons of general interest.
The purpose of this paper is to analyze empirically the importance of inflationary persistence in... more The purpose of this paper is to analyze empirically the importance of inflationary persistence in a group of sixteen advanced and developing countries. We do this by studying, in great detail, the time series properties of inflation using both univariate as well as multivariate techniques. We show that inflationary inertia greatly varies both across countries and across different periods of time within a country. Moreover, there seems to exists a clear connection between our estimates of inertia and the levels of inflation in the countries in our sample. Nominal exchange rate anchors seem to reduce inflation inertia but only until time goes by and the program fails to lower inflation to international levels.
The convergence hypothesis sustains that two economics sharing the same steady-state value of per... more The convergence hypothesis sustains that two economics sharing the same steady-state value of per-capita income, but with different initial conditions, will tend to close the existing gap between them. In this paper I apply this concept to the case of Puerto Rico. I show that Puerto Rico is not converging to the United States, and therefore Puerto Rico cannot be sharing the same steady-state level of income of the States of the Union. After controlling for several economic variables, I show that the political status of Puerto Rico might be part of the explanation for this phenomenon.
Economia Chilena, 2000
Este articulo caracteriza la estructura de tasas de interes reales en Chile y su evolucion a trav... more Este articulo caracteriza la estructura de tasas de interes reales en Chile y su evolucion a traves del tiempo, entregando una herramienta para el estudio sistematico de los determinantes de dicha estructura. Se utilizan datos de tasas de licitacion y transaccion de papeles del Banco Central de Chile y de bonos de reconocimiento de pensiones del Estado chileno para estimar la estructura de tasas mediante el metodo de Nelson y Siegel. Las estimaciones se utilizan, entre otras cosas, para medir el premio por liquidez en el mercado de puntas, simular la evolucion de las tasas instantanea y a plazo infinito, y analizar la emision de bonos cero cupon por el Banco Central de Chile y la respuesta de las tasas de interes en Chile a diversos eventos economicos locales e internacionales.
We analyze whether changes in external macroeconomic conditions are associated with changes in th... more We analyze whether changes in external macroeconomic conditions are associated with changes in the dynamics of risk and changes in the degree of informativeness of the price system for the Chilean economy. By focusing our analysis in Chile, we hope to isolate the effect of external macroeconomic volatility from the effects that weak institutions or a poor rule of law might have over domestic markets performance. We find that the dynamics of local financial risks is associated with the evolution of the overall economic conditions of the country, with a strong reduction in idiosyncratic and systematic risks during periods of stable macroeconomic conditions. Since the level and composition of financial risks can affect the net benefits of acquiring and trading on private information, we conjecture that external economic conditions can also affect the informativeness of domestic stock prices. We find that the ability of domestic stock prices to reflect fundamentals information improves ...
Uploads
Papers by Fernando Lefort